Photo-Me International
Annual Report 2013

Plain-text annual report

t P h o o - M e I n t e r n a t i o n a l p c l A n n u a l R e p o r t 2 0 1 3 Photo-Me International plc Annual Report 2013 Picture Perfect Photo-Me has two main activities: Operations and Sales & Servicing. Operations comprises the operation of unattended vending equipment, in particular photobooths, digital printing kiosks, amusement machines and business service equipment. Sales & Servicing comprises the development, manufacture, sale and after sale servicing of this Operations equipment and a range of photo-processing equipment, including photobook makers, kiosks and minilabs, together with the servicing of other third party equipment. Business Profile 01 2013 Highlights Governance Financial Statements 14 Board of Directors and Secretary 36 Group Statement of 02 Photo-Me at a Glance 16 Report of the Directors The Year in Review 04 Chairman’s Statement 19 Corporate Governance Statement 23 Corporate Responsibility 26 Remuneration Report 06 Business and Financial Review 33 Statement of Directors’ Responsibilities 34 Independent Auditor’s Report Comprehensive Income 37 Statements of Financial Position 38 Group Statement of Cash Flows 39 Company Statement of Cash Flows 40 Group Statement of Changes in Equity 41 Company Statement of Changes in Equity 42 Notes to the Financial Statements 92 Five Year Summary Company Information 94 Company Information and Advisors 95 Shareholder Information Highlights Revenue £195.6m -5.9% EBITDA £44.9m +2.0% 222.5 219.8 207.8 195.6 44.2 47.6 44.0 44.9 2010 2011 2012 2013 2010 2011 2012 2013 Pre-taxProfit £24.3m +20.7% DividendsPerShare 3.0p* +20.0% 24.3 20.1 18.0 14.0 3.0p* 2.5p 2.0p 1.25p 2010 2011 2012 2013 2010 2011 2012 2013 NetCash £61.4m +18.5% 61.4 51.8 40.7 *Excludingspecialdividendof3.0p SharePriceat30April 77.75p +71.8% 77.75 45.88 45.25 37.0 8.1 2010 2011 2012 2013 2010 2011 2012 2013 “Wehaveagainproducedasignificant increaseinprofitsagainstwhatcontinues tobeachallengingbackdrop” John Lewis Chairman 01 Annual Report for the year ended 30 April 2013Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationPhoto-Me at a Glance Our Products Photobooths Forover50years,Photo-Me hasbeentheworld’slargest operatorofphotobooths, withmarket-leading photographicqualityand innovativetechnology. Digital Printing Kiosks Benefitingfromthe photographicexpertiseand excellenceinself-service systems,Photo-Me’sdigital printingkiosksofferawide rangeofprintformatswith auser-friendlyinterface. Amusement Photo-Meoffersthe latestininteractive characterrides,exciting newsimulatorrides andaselectionof othercoin-operated amusementmachines. State-of-the-artcameras, tactilecontrolscreensand continuallydeveloping designshavehelpedto cementPhoto-Me’sposition attheheadofthefield. Photobooks,standard printsandpostersare amongthemanyproducts available,whichcanbe obtainedbyusingmost formsofdigitalmedia. Ourdistinctiverange providesourcustomers withafunandenjoyable experience. 02 Photo-Me International plcOur Presence UK & Ireland: UnitedKingdom,Ireland 13,450sites Continental Europe: Austria,Belgium, France,Germany, Hungary,Luxembourg, Netherlands,Poland, Portugal,Switzerland 20,500sites Diversification Asia: China,Japan, Singapore,SouthKorea 9,200 sites Revolution® Equippedwithhighcapacity washingmachines(8and18kg) theRevolution®launderetteisideal forwashinglargeorheavyloads suchasduvets,blanketsandpillows, injusta30minutewashingcycle. Combinedwithanenergysaving tumbledryer,Revolution®providesa fastandconvenientlaundryservice. Photolight Aneco-friendlylightingsolution.Innovativesolarstreetlights withmonocrystalinephotovoltaiccellswhichchargethehigh capacitylithiumbatteries,requiringnoconnectiontothegrid. 03 Annual Report for the year ended 30 April 2013Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationChairman’s Statement The Board is optimistic that going forward… the progressive roll-out of our laundry product- branded Revolution®… combined with increased penetration and maturity of our Starck photobooths, lower manufacturing costs and expansion into other territories means the Group has strong prospects. Results At constant currency, Group Revenue was 2.0% lower over the year, which was principally due to a further expected decline in revenue from our Sales & Servicing division. Despite lower sales, Group EBITDA increased during the period, with EBITDA margins improving to 23.0% from 21.2% in 2012. Our Operations division grew revenues by 1.2%, aided by a 6% increase in photobooth units and there were strong performances in a number of our markets. Profitability in our Operations division also continued to improve – aided by lower costs – with operating profit rising by 14.3%. platform for the Group and has led to savings from reducing both the level of stocks and staff numbers. We have also introduced new software relating to both the analysis of machine takings – which will allow better ongoing management – and accounting, with a reduction in associated licence costs. Our focus going forward is to try and drive down material costs even further by the use of smarter technology and design and by using low cost manufacturing bases. This will be especially important in our photobooth and laundry businesses. Strategy Our strategy is to use the significant cash flow generated from our long established photobooth business to develop new and complementary products which will drive our future growth. Alongside this, we are keen to penetrate new geographic markets, which offer the potential of long-term growth. We have made good progress over the last two years implementing this strategy, with the introduction of the new designer photobooth by Starck, entries into China, Poland and Malaysia and Korea and the development of our new laundry product. It has been the case however, that other product sales have remained at low levels due to continued reluctance by individual businesses and larger corporations to invest capital. Costs We have made a number of changes to the cost base in the recent past. We have restructured the French Sales & Servicing subsidiary and transferred management control to the CEO of the European activities. This has resulted in a centralised logistics Dividends We have rapidly grown dividends since reintroducing them in 2010. This year, we are pleased to be recommending a final dividend of 1.5 pence to give a total dividend for the year of 3.0 pence, representing a further increase of 20% over the year. In light of the strength of the balance sheet and mindful of shareholder returns, we also decided to return £10.9m by way of a special dividend of 3.0 pence per share in February 2013. The Group’s net cash position remains extremely healthy and we are anticipating success with our new laundry product, the rollout of which can be comfortably financed from internal resources. It is our stated intention to maintain a progressive dividend policy but the Board has now decided to provide greater clarity for shareholders. Therefore, with the strong provisos that the business moves forward as we expect, that our laundry product achieves its targets and we do not make a material acquisition, we intend to increase the annual dividend by 20% next year. In addition, the Board will consider the scope for a further special dividend. 04 Photo-Me International plcPhotobooth by Starck – 1,200 Starck booths worldwide – Touch screen display – High resolution 32” external LCD screen – Height adjusting camera – Design by Philippe Starck This dividend policy is intended to demonstrate a strong commitment to improving shareholder returns by more aggressively utilising the strong cash flows of the business combined with the Group’s existing cash position. If approved at the Annual General Meeting on 12 September 2013, the final dividend will be paid on 7 November 2013 to shareholders on the register at the close of business on 27 September 2013. The ex-dividend date is 25 September 2013. Employees On behalf of the Board, I would once again like to thank our management and employees for all their individual hard work, dedication and loyalty throughout the year. The Board would like to express its thanks to Robert Lowes who retired in April 2013 after 32 years with the Group, having joined in 1981. Robert served as Company Secretary from 1994 to April 2008 when he was appointed as an interim Director, resigning as a Director in July 2008, and returning to the position of Company Secretary. The Board wishes Robert well in his retirement. Current trading and Outlook In the first seven weeks of the new financial period, the Group’s core Operations division is performing in line with our expectations and we firmly believe the issues in the Sales & Servicing division, which is now a small part of the Group, are behind us. We are progressively modernising the photobooth estate and we are rolling out our laundry product which we believe will share a similar footprint in its target markets and the same cash flow characteristics as the photobooths. Subject to the risks and uncertainties detailed in the business and financial review, the Board once again anticipates that the Group will make further good progress over the coming year. John Lewis Non-executive Chairman 05 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Business and Financial Review Business Review Photo-Me has two principal activities, which the Board monitors in assessing the Group’s performance: Operations – which comprises the operation of unattended vending equipment, primarily photobooths, digital printing kiosks, laundry machines, photobook makers, amusement machines and business service equipment. Sales & Servicing – which comprises the development, manufacture, sale and after sale servicing of the above-mentioned Operations equipment and a range of photo-processing equipment and photo album maker solutions. Combined The business is international in its reach and focused on three main geographic areas at present: Continental Europe, UK & Republic of Ireland and Asia. The following geographical analysis is provided in order to give additional information, it is not a segmental analysis used in managing the business. Geographical analysis of revenue and profit (by origin) Year to 30 April Continental Europe UK & Republic of Ireland Asia Revenue Operating profit 2013 £m 104.9 44.9 45.8 2013† £m 110.7 45.1 48.0 195.6 203.8 2012 £m 114.0 47.6 46.2 207.8 Change† % -3.0 -5.4 +4.0 -2.0 2013 £m 15.2 3.3 5.7 24.2 2013† £m 16.1 3.4 5.9 25.4 2012 £m 13.6 2.5 3.9 20.0 Change† % +18.5 +32.1 +51.8 +26.8 † 2013 trading results of overseas subsidiaries converted at 2012 exchange rates The Group strongly improved its overall profitability as losses from Sales & Servicing were eliminated and as costs – principally commissions to site-owners, labour and depreciation – were again reduced. Operations Year to 30 April Revenue Operating profit 2013 £m 173.2 2013† £m 180.3 2012 £m 178.0 Change† % +1.2 2013 £m 28.1 2013† £m 28.8 2012 £m 25.1 Change† % +14.3 † 2013 trading results of overseas subsidiaries converted at 2012 exchange rates 06 Photo-Me International plc Revolution® – 100% self-service – Professional washing machines – High spin speed – Energy saving tumble dryer – Washing liquid provided – Disabled access Continental Europe UK & Republic of Ireland Asia 2013 20,500 13,450 9,200 43,150 Vending units 2012 19,400 14,950 8,950 43,300 Change +5.7% -10.0% +2.8% -0.5% This division contributed 89% (2012: 86%) of the reported revenue. Revenue increased by 1.2% at constant rate, but operating profit rose by 14.3%, with the company continuing to reduce costs, particularly those associated with manufacturing as well as commissions payable to site-owners. The overall decrease in the number of vending units was largely due to the removal of low value amusement machines in the UK. The European business saw a very strong performance in Germany where changes in the retail market are allowing the business to expand its photobooth estate, while the Belgian business also made good progress. Although revenue was fairly flat, the UK, Swiss and Japanese businesses were able to post good increases in operating profit with lower costs – including depreciation – feeding through. The biggest contributor to the division’s turnover and profits is the photobooth estate. This extensive network of sites, with long-standing site-owner contracts and relationships, supplemented by an established field service and cash collection infrastructure, represents one of Photo-Me’s greatest strengths. They are very cash generative and provide much of the finance for corporate developments, including investment in R&D to produce the next generation of products. Increasing the number of photobooth sites remains a priority for the Group and the increase of 6% to 24,900 was driven by increased penetration in Germany and the roll-out of the Starck booth. The photobooth estate is also changing in two ways. Firstly, they are becoming cheaper to produce by re-siting manufacturing and by using smarter technology inside. Secondly, the estate is being progressively modernised following the introduction of the designer Photobooth by Starck. These units numbered 1,200 at year end, an increase of 825 over the year. The performance of these units as they mature is encouraging as they provide a higher degree of profitability than comparable “older” units. From September 2013, all units sited, either new or by way of replacement, will be Starck booths. These trends, combined with the opportunity to expand into newer territories like Thailand, Ukraine, Malaysia and Poland, give the Group confidence that the photobooth estate can be returned to a growth footing going forward. 07 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Business and Financial Review continued Laundry units As the Group announced at the Interim results in December 2012, over the last three years and following a period of R&D and product development in Grenoble, Photo-Me has been trialling stand-alone heavy-duty laundry units in France and Belgium, sited predominantly at major supermarkets, standing outside the main buildings. The trials were focused on both the uptake of the product as well as the durability and reliability of the machines, which are designed essentially for the washing and drying of large laundry items such as duvets or bedding, accommodating large loads of up to 18kg. The price of an 18kg wash is normally €8, an 8kg wash is €4 and there is a further charge of €1 for drying, a price level which is usually cheaper than local alternatives. The results from the trials, both from a durability and takings standpoint, were sufficiently good that Photo-Me believes a significant opportunity exists to roll-out this product aggressively in France and Belgium initially, followed by other European countries in due course, utilising the same sites as the photobooth estate. The machines are currently assembled in France, but Photo-Me believes it will be able to reduce costs in the medium-term by increased sourcing from the Far East. The roll-out of the units will be self-financed by Photo-Me and they will be operated and maintained by Photo-Me’s extensive network of service engineers, using the same information systems as the photobooth estate. Photo-Me believes that this network, combined with its excellent long-standing relationships with site- owners – as well as price – will provide effective competitive barriers. As with photobooths, a commission is paid to the site-owner. Since the Interim results, the modernised design of the machines has been finalised and they have been re- branded as “Revolution”. At the end of the year, the total number of units in the field was 275, comprising 213 sales to third parties and 62 units owned and operated by Photo-Me. This will be accelerated by additional production from a supplier in Eastern Europe. The target is to have between 2,000 and 3,000 units (either by way of sales or owned/operated) in the field by the end of calendar year 2015. As with photobooths, the machines are very cash generative and to date, the average EBITDA margin on a laundry unit has exceeded 50%. Other products Digital printing kiosks are very much focused in Continental Europe, particularly France and Switzerland. While the market for simple printed photos is fairly mature, the Group continues to develop its range of innovative products, the latest of which is the Posterframe machine, for the production of high quality posters. This follows the introduction last year of the “all-in-one” kiosk, which incorporates a pocketbook maker. These products are designed to appeal to changing consumer taste. Amusement machines are predominantly a UK business and the year has seen a reduction in the number of low value units which were loss making. The business overall is profitable but very small. Business service equipment is largely in France, and much of the estate is co-located with photobooths and kiosks, and again is a small part of the business. Sales & Servicing Year to 30 April Revenue Operating loss 2013 £m 22.4 2013† £m 23.5 2012 £m 29.8 Change† % -21.1 2013 £m (0.6) 2013† £m (0.1) 2012 £m Change† % (2.5) +96.5 † 2013 trading results of overseas subsidiaries converted at 2012 exchange rates Substantially all of Sales & Servicing revenue derives from the sale to third parties of retail photographic equipment, in the form of machines and related supplies and consumables. Revenue decreased a further 21.1%, but, following extensive restructuring, the business returned to break- even. The result includes a £2.4m profit on the sale of an industrial building in France (used within Sales & Servicing), offset by increased provisions on stock and other provisions. Sales of product have remained at low levels in what continues to be a difficult market. The division is focusing its effort on supporting the Operations division in relation to manufacturing costs, R&D for the Group as a whole, and the sales of consumables. 08 Photo-Me International plcIncreasing the number of photobooth sites remains a priority for the Group and the increase of 6% to 24,900 was driven by increased penetration in Germany and the roll-out of the Starck booth. Financial Review Statement of comprehensive income The following table summarises the results, analysed between the two Divisions, Operations and Sales & Servicing: Year to 30 April Operations Sales & Servicing Group overheads Revenue Operating profit/(loss) 2013 £m 173.2 22.4 2013† £m 180.3 23.5 2012 £m 178.0 29.8 Change† % +1.2 -21.1 195.6 203.8 207.8 -2.0 2013 £m 28.1 (0.6) (3.3) 24.2 2013† £m 28.8 (0.1) (3.3) 25.4 2012 £m 25.1 (2.5) (2.6) 20.0 Change† % +14.1 +97.9 -33.1 +25.4 † 2013 trading results of overseas subsidiaries converted at 2012 exchange rates Reported turnover decreased by 5.9% to £195.6m (-2.0% at constant currency). EBITDA increased by 2.0% to £44.9m; the figure remains substantial, representing 23.0% of revenue. Operating profit improved by 20.9% from £20.0m to £24.2m (+25.4% at constant currency). Net finance revenue was £0.1m. The pre-tax profit increased by 20.7% to £24.3m (2012: £20.1m). After a tax charge of £6.7m (2012: £5.6m), representing a charge of 27.8% (2012: 27.8%), the profit after tax of £17.6m (2012: £14.5m) reflected a 20.7% improvement. The fully diluted earnings per share from continuing operations were 4.76 pence (2012: 3.95 pence). Statement of financial position Shareholders’ equity totalled £97.1m (2012: £95.8m), equivalent to 26.7 pence (2012: 26.4 pence) per share. Cash generation has remained very strong and we have further increased our net cash balance to £61.4m (2012: £51.8m), leaving the Group well placed for the future. 09 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013 Business and Financial Review continued Funding and treasury policy The £9.6m net cash inflow is explained in the following summarised cash flow statement: Opening net cash (as defined in note 19 to the accounts) Cash flow Operating profit Depreciation Working capital Taxation Interest paid Profit on sale of fixed assets All others Operating cash flow Use of cash flow Capital expenditure Dividends paid Sale of Treasury Shares Proceeds from sale of fixed assets All others Net cash inflow Closing net cash 2013 £m 51.8 24.2 20.7 4.3 (7.3) (0.4) (2.7) 0.1 38.9 (19.0) (20.0) 5.7 3.7 0.3 (29.3) 9.6 61.4 2012 £m 40.7 20.0 24.0 0.5 (5.3) (0.6) – (2.1) 36.5 (18.3) (7.2) – 0.8 (0.7) (25.4) 11.1 51.8 Capital structure The Group’s funding policy is to maintain a timely flow of funds to meet anticipated funding requirements. The Group manages its capital to sustain the future development of the business and to maximise long-term shareholder value. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, sell assets or review the level or type of debt. At 30 April 2013, the Group’s borrowings were mainly short-term, and the amount was not material. Surplus cash is placed in bank deposits and other investments with high credit ratings and kept under constant review. The Group is primarily financed by Ordinary shares, retained profits and borrowings. Financial instruments With a strong net cash position, the Group currently finances its working capital and capital expenditure programmes from its own resources. The Group takes the view that short-term debtors and creditors are not financial instruments that play a significant medium to long-term role in the financial risk profile of the Group. Financial risks The Group is exposed to the following risks arising from financial instruments: credit risk, liquidity risk and market risk. 10 Photo-Me International plcOperating profit improved by 20.9% from £20.0m to £24.2m Credit risk The Group has no significant concentrations of credit risk. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, and on outstanding trade and other receivables. Cash deposits are limited to high credit quality financial institutions. The Group has policies in place to ensure that sales of products and services are made to customers with an approved credit history. Liquidity risk The Group’s liquidity risk management involves maintaining sufficient cash and cash equivalents and the availability of funding through an adequate amount of committed credit facilities. The current facilities provide more than sufficient liquidity headroom to support the business for the foreseeable future. The strong net cash position over the past three years (£61.4m at 30 April 2013) has reduced liquidity risk for the Group. Market risk Foreign exchange risk The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than the local functional currency. Where possible, the Group tries to invoice in the local currency of the respective entity. If this is not possible, then to mitigate exposure, the Group endeavours to buy from suppliers and sell to customers in the same currency. In addition, the Group faces currency risks arising from monetary financial instruments held in non-functional currencies. Where possible, the Group tries to hold the majority of its cash and cash equivalent balances in the local currency of the respective entity. The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. The main currency translation risk relates to foreign operations whose functional currency is the Euro, Swiss franc or Japanese yen. The investments are not hedged. Interest rate risk With the low level of external debt at 30 April 2013, the Group is not currently exposed to significant interest rate risk exposure. 11 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Business and Financial Review continued Key performance indicators The Group measures its performance using a mixture of financial and non-financial indicators. These are aligned to the Group’s long-term strategy of enhancing shareholder value. 2013 2012 Change Vending sites Total Photobooths Digital printing kiosks & photobook makers Other vending equipment Revenue Total Operations Sales & Servicing EBITDA Operating profit Total Operations Sales & Servicing Group overhead Increase in net cash position Gearing ratio Gross capital expenditure Depreciation and amortisation 43,150 24,900 5,000 13,250 £195.6m £173.2m £22.4m £44.9m £24.2m £28.1m £(0.6)m £(3.3)m £9.6m – £19.2m £20.7m 43,300 23,500 5,100 14,700 £207.8m £178.0m £29.8m £44.0m £20.0m £25.1m £(2.4)m £(2.7)m £11.1m – £18.4m £24.0m -0.3% +6.0% -2.0% -9.9% -5.9% -2.7% -24.9% +2.0% +£4.2m +£3.0m +£1.8m -£0.6m -£1.5m – +£0.8m -£3.3m Financial objective Photo-Me’s main financial targets for the future are to increase revenue, to maintain profitability and to provide attractive returns for investors backed by the Group’s strong cash generation. Risks and Uncertainties Like all businesses, the Group faces risks and uncertainties that could impact the achievement of the Group’s strategy. These risks are accepted as being part of doing business and the Board recognises that the nature and scope of these risks can change and so regularly reviews the risks faced by the Group as well as the systems and processes to mitigate them. The table overleaf sets out what the Board believes to be the principal risks and uncertainties, their impact and the mitigation actions. 12 Photo-Me International plcNature of the risk Description and impact Mitigation Economic • Global economic conditions • Volatility of foreign exchange rates Regulations • Centralisation of production of ID photos Strategic Economic growth is a major influence on consumer spending. A sustained period of economic recession could lead to a decrease in consumer expenditure in discretionary areas The Group focuses on maintaining the characteristics and affordability of its needs-driven products The majority of the Group’s revenue and profit is generated outside of the UK, and the Group results could be adversely impacted by an increase in the value of sterling relative to those currencies The Group sometimes hedges its exposure to currency fluctuations on transactions. However, by its nature, in the Board’s opinion, it is very difficult to hedge against currency fluctuation arising from translation in consolidation in a cost-effective manner In many European countries where the Group operates, if governments were to implement centralised image capture for biometric passport and other applications, the Group’s revenues and profits could be seriously affected The Group is developing new systems that could respond to this situation. The Group also ensures that its ID product remains affordable and of high quality The Group is also conducting lobbying actions • Identification of new business opportunities Failure to identify new business areas may impact the ability of the Group to grow in the long term The Management teams constantly review demand in existing markets and potential new opportunities. The Group continues to invest in research for new products and technologies • Inability to deliver anticipated benefits from the launch of new products Market • Commercial relationships Operational • Reliance on foreign manufacturers • Reliance on one single supplier of consumables • Reputation • Product and service quality The realisation of long-term anticipated benefits depends upon the successful launch of the “Revolution®” laundry unit The Group regularly monitors the performance of newly installed machines, which are heavily trialled before launch The Group has well-established long- term relationships with a number of site-owners. The deterioration in the relationship with, or ultimately the loss of, a key account could have a material impact on the Group’s results Some of the Group’s key relationships are supported by medium-term contracts. We actively manage our site-owner relationships at all levels to ensure a high quality of service The Group sources most of its products from outside the UK. Consequently, the Group is subject to risks associated with international trade Extensive research is conducted into quality and ethics before the Group procures products from any new country or supplier. The Group also maintains very close relationships with both its suppliers and shippers to ensure that disruption to production and supply are managed appropriately The Group currently buys all its paper for photobooths from one single supplier. The failure of this supplier could have a dramatic effect The Board has decided to hold a strategic stock of paper, allowing for one year’s worth of paper consumption, to give enough time to put in place alternative solutions The Group’s brand is a key asset of the business. Failure to protect the Group’s reputation and brand could lead to a loss of trust and confidence. This could result in a decline in the customer base The protection of the Group’s brand in its core markets is sustained by products with certain unique features and offerings as well as regular maintenance to maintain appearance The Board recognises that the quality and safety of both its products and services is of critical importance and that any major failure will affect consumer confidence The Group continues to invest in both its existing estate, to ensure that it remains contemporary, and in constant product innovation to meet customer needs. The Group also has a programme to regularly train its technicians Serge Crasnianski Chief Executive Officer Françoise Coutaz-Replan Group Finance Director 13 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013 Board of Directors and Secretary 1 2 3 1. John Lewis OBE Non-executive Chairman Joined the Board in July 2008 and appointed Chairman in May 2010. Chairman of the Nomination Committee and a member of the Audit and Remuneration Committees. Currently a consultant to Messrs Eversheds and a Director of AIM market company, Prime People plc as well as various private companies. Previously a practising solicitor and partner in Lewis Lewis and Co which became part of Eversheds after a series of mergers. Also previously served as Chairman of Cliveden Plc and Principal Hotels plc and as Vice Chairman of John D Wood & Co plc and Pubmaster Group Ltd. 2. Serge Crasnianski Chief Executive Officer and Deputy Chairman Appointed to the Board in May 2009. Previously served on the Board from 1990 to 2007; until 1994 as a Non-executive Director, from 1994 as an Executive Director and as Chief Executive Officer from 1998 to 2007. Founded KIS in 1963. 3. Françoise Coutaz-Replan Group Finance Director Appointed to the Board in September 2009. Joined KIS in 1991. Appointed Finance Director of Photo Me France and KIS in November 2007. The new Vintage photobooth offers two traditional fun photo strips (black & white and colour), allowing four different poses. Ideal for retail or entertainment environments. 14 Photo-Me International plc 4 5 6 7 4. Emmanuel Olympitis Non-executive Director Appointed to the Board in December 2009. Senior Independent Non-executive Director, Chairman of the Remuneration Committee and a member of the Nomination and Audit Committees. Previous directorships include China Cablecom Holdings Limited (NASDAQ), Canoel International Energy Limited (Canada), Matica plc, Secure Fortress plc, Bulgarian Land Development plc, Norman 95 plc, Pacific Media plc (Executive Chairman) and Bella Media plc (Chairman). Early career in merchant banking and financial services, including as Executive Director of Bankers Trust International Ltd, Group Chief Executive of Aitken Hume International plc and Executive Chairman of Johnson & Higgins Ltd. 5. Jean-Marcel Denis Non-executive Director Appointed to the Board on 1 March 2012. Chairman of the Audit Committee and a member of the Nomination and Remuneration Committees. Founded his own auditing firm in 1970 in Paris; Auditeurs & Conseils Associes (ACA) and sold his interest in ACA in 2005. Subsequently a consultant in Finance & Conseils Associes, which specialises in business valuations. 6. Yitzhak Apeloig Non-executive Director Appointed to the Board on 8 March 2012. A qualified accountant and Managing Partner of ATE Technology Equipment B.V., a private equity firm active mainly in Israel. Chairman of Leader Holdings and Investments Ltd and Polar Communications Ltd and Director of Leader Capital Markets Ltd (all quoted on the Israeli Tel Aviv Stock Exchange). Chairman or Director of a number of other private companies. Previously Executive Chairman of Telit Communications plc, having led its flotation on the London AIM market in 2005. 7. Del Mansi Company Secretary Joined the Group in 2006. A qualified solicitor. Served as interim Company Secretary from April to July 2008. Appointed Group General Counsel in 2009, a role retained upon being appointed Company Secretary on 10 May 2013. 15 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Report of the Directors The directors submit to the shareholders their report, the audited consolidated financial statements of the Group and such audited financial statements of Photo-Me International plc as required by law for the year ended 30 April 2013. The Chairman’s Statement, the Business and Financial Review and the Corporate Governance Statement should be read as forming part of this report. Principal activities The principal activities of the Group continue to be the operation, sale and servicing of a wide range of instant service equipment. The Group operates coin-operated automatic photobooths for identification and fun purposes and a diverse range of vending equipment, including digital photo kiosks, amusement machines, business service equipment and laundry machines. Sales and servicing comprises the development, manufacture, sale and after-sale servicing of both the above-mentioned equipment and a range of photo-processing equipment and album makers. The principal subsidiary and associated undertakings of the Group are shown on page 91. Results and dividends The results for the year are set out in the Group statement of comprehensive income on page 36. The directors recommend a final dividend of 1.5p per Ordinary share which, if approved at the Annual General Meeting, will be paid on 7 November 2013 to shareholders on the register at 27 September 2013 (ex-dividend date: 25 September 2013). This, together with the interim dividend of 1.5p per share paid on 7 May 2013, makes a total dividend for the year of 3.0p per Ordinary share. In addition, a special dividend of 3.0p per Ordinary share was paid on 8 March 2013. Review of the business and future developments The Chairman’s statement and the Business and Financial Review, which form part of this report, describe the activities of the business during the financial year, recent events and the outlook for the future. A discussion of the key risks facing the Group and an analysis of key performance indicators are also provided. Market value of land and buildings The directors consider that the market value of the Group’s interest in land and buildings (including investment property) materially exceeds its aggregate net book value of £3,317,000 that is included in these financial statements. Research and development The Group is committed to its research and development programme in order to maintain its introduction to the market of innovative products. The expenditure incurred on the development of new vending equipment and photo-processing equipment is shown in notes 4 and 11 to the financial statements. Employees Information on the Group’s employment practices including employee communication and involvement is contained within the Corporate Responsibility Statement on page 24. Corporate responsibility A summary of the Company’s approach to corporate social responsibility and environmental matters can be found in the Corporate Responsibility Statement on pages 23 to 25. Board of directors and their interests The current directors of the Company are John Lewis (Chairman), Serge Crasnianski (Chief Executive Officer and Deputy Chairman), Françoise Coutaz-Replan (Group Finance Director), Emmanuel Olympitis (Senior Independent Non-executive Director, Chairman of the Remuneration Committee and a member of the Nomination and Audit Committees), Jean-Marcel Denis (Chairman of the Audit Committee and a member of the Nomination and Remuneration Committees) and Yitzhak Apeloig. Further details, together with a brief biography of each director, can be found on pages 14 and 15. All directors served on the Board throughout the year under review. In addition to the powers conferred on the directors by law, the Company’s Articles of Association also set out powers of the directors; a copy of the Articles of Association can be found on the Company’s website. The director retiring by rotation and being put forward for re-appointment at the Annual General Meeting this year is Emmanuel Olympitis. Details of the directors’ contracts, emoluments and interests in shares and share options are given in the Remuneration Report on pages 26 to 32. 16 Photo-Me International plcDirectors’ and officers’ liability insurance The Company maintained directors’ and officers’ liability insurance cover throughout the financial year. This insurance cover extends to directors and officers of subsidiary undertakings and remains in force. Article 191 of the Company’s Articles of Association provides for the indemnification of directors of the Company and associated companies and of directors of a company that is the trustee of an occupational pension scheme for employees of the Company or an associated company against liability incurred by them in certain situations, and is a “qualifying indemnity provision” within the meaning of Section 236 (1) of the Companies Act 2006. Substantial shareholders As at 26 June 2013, the Company has been notified of the following disclosable interests in the Ordinary shares of the Company: Serge Crasnianski (director) Western Management Overseas Limited Dan David Foundation Schroder Investment Management Limited Norges Bank Number of Ordinary shares 79,783,450 65,963,267 45,579,318 40,296,101 14,400,000 % of total voting rights Nature of holding 21.49 *Direct/indirect Direct 17.77 Direct 12.28 Indirect 10.86 Direct 3.88 * Except for 63,750 Ordinary shares held in his own name, the interest in which is direct, the remaining shares are registered in the name of Tibergest S.A., and Mr Crasnianski’s interest in those remaining shares is indirect. Except for the above, the Company has not been advised of any shareholders with interests of 3% or more in the issued Ordinary share capital of the Company. Philippe Wahl, a former director of the Company, has declared an interest in the shares registered in the name of Western Management Overseas Limited. Share capital The issued share capital of the Company, together with details of the movements in the Company’s issued share capital during the year, are shown in note 20 to the financial statements. Each Ordinary share of the Company carries one vote at general meetings of the Company. Following the exercise of share options since 30 April 2013, the number of shares in issue has increased to 371,250,671, all of which shares carry voting rights. Authority to purchase shares The Company will seek approval at the 2013 Annual General Meeting to renew the authority for the Company to make market purchases of up to 10% of its own Ordinary shares at a maximum price per share of not more than 5% above the market value. This authority will expire on the earlier of 18 months from the passing of the relevant special resolution or the conclusion of the next Annual General Meeting. The Company made no repurchases of shares in the year to 30 April 2013. On 13 March 2013, the Company sold through the market the 7,505,000 Ordinary shares (2.0% of the then issued Ordinary shares following such sale) purchased in previous years that were held in treasury at a price of 78.0p per Ordinary share. Additional information Where not provided elsewhere in the Report of the Directors, the following provides the additional information required to be disclosed in the Report of the Directors. The structure of the Company’s share capital including the rights and obligations attaching to the shares is set out within note 20. No person holds securities carrying special rights with regards to control of the Company. There are no restrictions on the transfer of Ordinary shares in the capital of the Company other than certain restrictions which may from time to time be imposed by law (for example, insider trading law). In accordance with the Listing Rules of the Financial Conduct Authority, certain employees are required to seek the approval of the Company to deal in its shares. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of shares or on voting rights. The rules governing the appointment of directors are set out in the Corporate Governance Statement on pages 19 to 21. The Company’s Articles of Association may only be amended by a special resolution at a general meeting of shareholders. 17 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Report of the Directors continued The Company is party to a number of agreements with site-owners (such as major supermarket chains) which could be terminable by the site-owner following a change of control. There are no agreements between the Company and its directors or employees which provide for compensation for loss of office or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid. The Company is not aware of any contractual or other agreements which are essential to its business which ought to be disclosed in this Report of the Directors. Proxy appointment and voting instructions must be received by the registrars not less than 48 hours before a general meeting. Related party transactions Details of related party transactions are set out in note 28 to the financial statements. Creditor payment policy The Company does not follow a universal code which deals specifically with payments to suppliers but, where appropriate, the Company’s practice is to: • agree the terms of payment at the start of business with the supplier; • ensure that those suppliers are made aware of the terms of payment; and • pay in accordance with its contractual and other legal obligations. United Kingdom subsidiaries follow the same policy and overseas subsidiaries are encouraged to adopt similar policies, by applying local best practice. The Company’s average creditor payment period at 30 April 2013 was 58 days (2012: 53 days). Going concern Having reviewed forecasts, cash flow, financial resources and financing arrangements and after making enquiries, the directors consider that the Company and the Group have adequate resources to remain in operation for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the financial statements. Financial instruments Details of the financial risk management objectives and policies of the Group and exposure of the Group to foreign exchange risk, interest rate risk and liquidity risk are given on pages 10 to 13 and note 15 to the financial statements. Disclosure of information to auditors The directors who held office at the date of approval of this Report of the Directors confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditors are unaware; and each director has taken all the steps that he or she ought to have taken as a director to make himself or herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. Auditors Our auditors, KPMG Audit Plc, have instigated an orderly wind down of business. The Board has decided to propose KPMG LLP to be appointed as auditors of the Company in place of KPMG Audit Plc and a resolution concerning their appointment will be put to the forthcoming Annual General Meeting of the Company. Annual General Meeting The Notice of the Annual General Meeting, to be held on 12 September 2013, is sent to all shareholders of the Company. The Notice convening the meeting provides full details of all the resolutions to be proposed, together with explanatory notes for the special business. Copies of this Annual Report are sent only to shareholders who have requested or request a copy. By order of the Board Del Mansi Company Secretary 26 June 2013 18 Photo-Me International plcCorporate Governance Statement (forming part of the Report of the Directors) Statement of compliance with the UK Corporate Governance Code The Financial Conduct Authority requires listed companies incorporated in the United Kingdom to include in their annual financial report (i) a statement of how they have applied the main principles set out in the UK Corporate Governance Code (the “Code”) and (ii) a statement as to whether they have complied throughout the accounting period with all relevant provisions set out in the UK Corporate Governance Code. The directors consider that the Company has, throughout the year ended 30 April 2013, complied with the provisions of the Code (the June 2010 edition) applicable to it. The Code and associated guidance are available on the Financial Reporting Council website at www.frc.org.uk. Explanations of how the principles have been applied and the provisions complied with are set out below. The Board Throughout the year under review, the Board was comprised of the same six directors, being the Chairman, the Chief Executive Officer, the Group Finance Director and three Non-executive Directors, two of whom the Board considers to be independent, namely, Emmanuel Olympitis and Jean-Marcel Denis. The Chairman has the overall responsibility for managing the Board. The Chief Executive Officer has responsibilities for strategy, operations and results. Clear division of responsibility exists such that no one individual or group of individuals can dominate the Board’s decision-making process. Throughout the year under review, John Lewis served as Chairman and Serge Crasnianski served as Chief Executive Officer and Deputy Chairman. The Board structure has complied with the Code provision that, as a “smaller company” (as defined by the Code), the Company has two independent Non-executive Directors excluding the Chairman. The Board believes that Yitzhak Apeloig is non-independent due to his existing business relationships with two major shareholders of the Company. Before his appointment, Yitzhak Apeloig confirmed to the Board that he will not represent these shareholders, holds no mandate from them, nor will he report to them. Emmanuel Olympitis has served as the Company’s Senior Independent Non-executive Director throughout the period. In the event of the appointment of a new director, the Board would ordinarily appoint someone who, it believes, has sufficient knowledge and experience to fulfil the duties of a director. If this were not the case, an appropriate training course would be provided. An appropriate induction programme is undertaken for all newly-appointed directors. All directors have access to the advice and services of the Company Secretary. Any director, wishing to do so in furtherance of his duties, may take independent advice at the Company’s expense. All directors are required to stand for re-election at a maximum of every three years and newly appointed directors are subject to election by shareholders at the first Annual General Meeting after their appointment. The Chief Executive Officer and the Chairman review the performance of each Executive Director. The Chairman reviews the performance of the Chief Executive and each Non-executive Director. The Non- executive Directors, led by the Senior Independent Non-executive Director, evaluate the performance of the Chairman. During the year, the Chairman met with Non-executive Directors without the Executive directors being present. An internal process to assess the effectiveness of the Board was undertaken during the year, consisting of a confidential survey. Areas that were identified in which there was considered to be room for improvement, will be addressed by the Board during the current year. The Board is normally scheduled to meet four or five times a year, with ad hoc meetings convened to deal with urgent matters. The Board has a formal schedule of matters reserved to it for decision. These include approval of the financial statements, dividend policy, major acquisitions and disposals and other transactions outside delegated limits, significant changes in accounting policies, the constitution of Board Committees, risk management and corporate governance policy. The Board has delegated various matters to Committees, as detailed below. These Committees of the Board meet regularly (the Nomination Committee meets as required) and deal with specific aspects of the management of the Company. The Board has delegated authority to the Committees and they have defined terms of reference which are available on the Company’s website (www.photo-me.co.uk). Decision- making relating to operational matters is delegated to senior management. Board and Committee papers are provided at each meeting and are supplemented by reports and presentations to ensure that Board members are kept fully informed. 19 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Corporate Governance Statement continued The Board continued The Board had six meetings during the year under review. The attendance of directors at those meetings and meetings of Board Committees is set out below. Number of meetings held Director J Lewis S Crasnianski Y Apeloig F Coutaz-Replan J-M Denis E Olympitis Board 6 Audit Committee 3 Remuneration Committee 3 Nomination Committee – Number of meetings attended (maximum possible) 5(6) 6(6) 6(6) 6(6) 6(6) 6(6) 3(3) n/a n/a n/a 3(3) 3(3) 3(3) n/a n/a n/a 3(3) 3(3) – (–) n/a n/a n/a – (–) – (–) Board Committees The Audit Committee The Audit Committee consists entirely of non-executive directors. For the whole of the year under review, Jean-Marcel Denis (Committee Chairman), Emmanuel Olympitis and John Lewis (Chairman of the Company) served on the Committee. The composition of the Committee was compliant with the Code, which permits a smaller company’s Chairman to be a member of the Audit Committee providing he was considered independent on appointment as Chairman. The Board considers that both Emmanuel Olympitis and Jean-Marcel Denis have suitable recent and relevant financial experience to satisfy the requirements of the Code. The Committee’s Terms of Reference are available on the Company’s website. Meetings are normally held at least twice per year. Three meetings were held during the year under review. Other directors (the Chief Executive Officer, the Group Finance Director and Yitzhak Apeloig – who is a qualified accountant) together with representatives of the external auditors and the Group’s internal auditor are generally invited to attend meetings. The minutes of the meetings are circulated to all directors. The Committee meets with the external auditors, without executive directors present, at least once a year. On behalf of the Board, the Committee reviews the Group’s accounting and financial reporting practices, the reports of the internal and external auditors and compliance with policies, procedures and applicable legislation. In addition, the Committee monitors the effectiveness of both the external and internal audit functions and reviews the Group’s internal financial control systems and reporting processes, and risk management procedures. The Committee considers the appointment of the external auditor and recommends the audit fee to the Board; sets a policy for safeguarding the independence of the external auditors and reviews their work outside of the audit itself, taking into account the nature of the work, the size of the fees and whether it is appropriate for the external auditors to carry out such work. Details of audit and non-audit fees are provided in note 4 to the financial statements. KPMG Audit Plc has been the external auditor of the Group since December 2008. The Audit Committee is satisfied with the effectiveness, objectivity and independence of the external auditor. KPMG Audit Plc has instigated an orderly wind down of business and the Board has decided to put KPMG LLP forward to be appointed as auditors at the forthcoming Annual General Meeting of the Company. A whistle-blowing procedure, by which staff may raise concerns about possible improprieties in matters of financial reporting or other matters, was in place throughout the year. The whistle-blowing policy can be found on the Company’s website. 20 Photo-Me International plcThe Remuneration Committee During the year under review, the Remuneration Committee comprised Emmanuel Olympitis (Committee Chairman), Jean-Marcel Denis and John Lewis (Company Chairman). Thus, the composition of the Committee was compliant with the provisions of the Code which requires the Remuneration Committee of a smaller company to comprise at least two independent non-executive directors with the Company Chairman additionally being permitted to serve as a member providing that he was considered independent on his appointment as Chairman. The Committee meets at least once per year. Three meetings were held in the year to 30 April 2013. The Committee makes recommendations to the full Board in respect of the Group’s remuneration policy. The Committee also keeps under review the remuneration of the Chairman, the Group’s executive directors and senior executives, to ensure that they are rewarded fairly for their contribution. The Committee also makes awards under the Executive Share Option Scheme. The Committee’s Terms of Reference are available on the Company’s website. The Remuneration Report on pages 26 to 32 provides details of how the Committee applies the directors’ remuneration principles of the Code. The Nomination Committee During the year under review, the Nomination Committee comprised John Lewis (Committee Chairman), Emmanuel Olympitis and Jean-Marcel Denis. Thus, the composition of the Committee was compliant with the provisions of the Code which requires the Nomination Committee of a smaller company to comprise a majority of independent non-executive directors with the Company Chairman additionally being permitted to serve on the Committee as a member or as Chairman. The Committee, which meets as required, makes recommendations to the Board on the appointment of new directors. As no new candidates were considered for appointment to the Board during the year, the Committee did not meet in the year. The Committee’s Terms of Reference are available on the Company’s website. Relations with shareholders The Chief Executive Officer and Group Finance Director have regular meetings with the Company’s major institutional shareholders to help ensure, amongst other things, that the Board develops an understanding of the views of major shareholders about the Company. The Chairman also meets with major shareholders and has contact with them, as and when required. The Senior Independent Non-executive Director and, where appropriate, other non-executive directors, are also made available to meet with major shareholders, on request. Any pertinent feedback arising from such meetings is reported to the Board at its regular meetings. Private investors are encouraged to attend the Annual General Meeting and have the opportunity to question the Board. All members of the Board usually attend the Annual General Meeting. The notice of the meeting is sent to shareholders at least 20 working days before the meeting. Shareholders are given the opportunity to vote on each separate issue. The number of proxy votes lodged is announced after the vote on a show of hands for each resolution and is published on the Company’s website. 21 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Corporate Governance Statement continued Internal control The Board is ultimately responsible for the Group’s systems of internal control and risk management, and for reviewing their effectiveness. This is effected by receiving reports from the Audit Committee following its review. The Board confirms that it has reviewed the effectiveness of the systems of internal control. The Board is satisfied generally that such systems have operated adequately throughout the period. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives. Such a system can, however, provide only reasonable and not absolute assurance against material misstatement or loss. The Group has in place processes for identifying, evaluating and managing the significant risks which are applicable to the business. The Board regularly reviews these processes. The Chief Executive Officer is ultimately responsible for risk management. Executive managers of individual Group companies are responsible for the identification, evaluation and management of the key risks applicable to their areas of responsibility. The risks are assessed on a regular basis. The managers of Group companies are aware of their responsibility to operate systems of internal control which are effective and efficient for their businesses, to provide reliable financial information and to ensure compliance with local laws and regulations. The Group has a comprehensive budgeting system with an annual budget approved by the Board. Actual results are reported monthly through the Group’s financial systems, and variances are reviewed. The Group’s internal auditor (who reports to the Audit Committee) has reviewed operations in all material Group companies during the year under review. The Audit Committee receives reports from the internal auditor and from the external auditors and reports its conclusions to the Board. Conflicts of interest During the year, directors completed questionnaires in respect of their interests. No actual or potential conflicts of interest were identified. The Board will continue to monitor and review actual or potential conflicts of interest on a regular basis and will consider whether or not it is appropriate to authorise any such conflicts. 22 Photo-Me International plcCorporate Responsibility Our approach to corporate responsibility The Group recognises its responsibilities to the community and the environment and believes that health, safety and environmental issues are integral and important components of best practice in business management. Our management of corporate responsibility can influence our ability to create long-term financial and non-financial value, and impacts on our relationship with shareholders and other stakeholders. We believe that effective management of corporate responsibility can reduce risks and also help us identify business opportunities. We prioritise our corporate responsibility activities based on three main drivers: • legal requirements and future policy trends; • customer, employee and investor preferences for corporate responsibility; and • cost savings and business efficiency. We aim to ensure that our approach is consistent with the directors’ duty to promote the success of the Company, a legal requirement included in the UK Companies Act 2006. This duty is based on the principle of ‘enlightened shareholder value’. How we manage corporate responsibility Our Board is ultimately accountable for corporate responsibility. The Chief Executive has specific responsibility for risk management and health, safety and environmental matters, with delegated authority through line management. The Group operates in highly differentiated national markets with differing national legislations, preferences and cultures. As a result, operational direction and management of corporate responsibility lie primarily with national business managers, who are best placed to ensure compliance with national legislation and market expectations. The Group internal audit programme operates on a risk-based assessment process, including corporate responsibility issues. The Board reviews Group-wide performance on corporate responsibility within the assessment and review process. Where necessary, Group-wide policies are developed or revised to address specific risks and opportunities, or new information. Products The development, use and disposal of our products represent a main area of both risk and opportunity. We ensure that our products and services are designed to meet existing legislation and customer expectations. Increasingly, this includes environmental, health & safety and accessibility issues. To ensure that products manufactured by KIS SAS (the Group’s manufacturing subsidiary, based in France) consistently satisfy our stringent quality requirements, certification to the ISO 9001 standard has been achieved. Being conscious of the global issues with the disposal of waste and having regard to increasing metal prices and landfill costs, we have paid more attention to the re-use and recycling of our retired products. Presently, at the end of their useful lives more than 90% by weight of the materials used in our photobooths is recycled – most of this being steel and other metals. In response to our concerns about the increase in energy costs and man-made contributions to climate change, we have also embraced technological advances by investing in energy-saving improvements to our products, which are explained further under “Environment”, below. The needs of all our customers are important. This drives a continual review of our products and the development of solutions to meet these needs. For example, we have improved the service provided to our disabled customers and at the same time complied with the requirements of the Disability Discrimination Act, by introducing within our photobooths on-screen instructions for the hard-of-hearing and voice instructions as well as carefully selected screen colours and font sizes to assist those with visual impairments. In addition the development of the Universal photobooth enables access for users confined to a wheelchair. 23 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Corporate Responsibility continued Employees Our highly skilled and committed workforce gives us a distinct competitive advantage. We recognise that we must continue to help meet our employees’ needs and expectations. We have a tradition for in-house training and promoting internal candidates, and have set up several programmes to support life-long learning. Many of our Group companies work with local schools and universities to attract skilled young people. In line with best practice, we also have a Group-wide equal opportunities policy, ensuring non-discrimination on the basis of age, gender, race and disability. The equal opportunity policy gives full and fair consideration to applicants for employment who are disabled, for continuing the employment of those who become disabled and for training and developing disabled employees. Where appropriate, employees are provided with information on matters of interest and concern to them. We encourage contact and interaction between all members of staff at all levels. Health & safety We are committed to ensuring that customers, site-owners and employees are free from risk from any products operated by the Group. In addition to these moral and ethical considerations we believe that the effective management of health and safety is an essential ingredient for successful business performance. The commitment to the safety of our customers and business partners is achieved through a network of trained service operatives who routinely service installed equipment on customers’ sites as well as conducting periodic safety inspections and tests. Customers and site-owners are able to quickly raise any safety concerns through our own call centres, which will immediately inform management and direct an operative to the site. New products from external suppliers are assessed to ensure that they meet the relevant safety standards before being placed on the market. Where appropriate we will work with our suppliers, sharing the benefit of our many years’ experience to develop products with the greatest level of safety. Children’s rides manufactured by Jolly Roger (Amusement Rides) Limited, a Group subsidiary company in the UK, are produced in accordance with the industry guidance issued by BACTA (British Amusement and Catering Trades Association). This supplements the various British, European and International standards that apply to children’s rides and ensures a minimum standard of quality and safety. The Company is also a registered inspection body within the UK of the ADIPS Scheme (Amusement Device Inspection Procedures Scheme) administered by BACTA and enables our qualified operatives to inspect children’s rides and issue the required safety certification. Within the UK, the Chief Operating Officer fully supports the Health & Safety Policy and has ensured that there is provision within the agenda of regular senior executive meetings to address health and safety matters. The policies and procedures developed over the years continue to be reviewed and adjusted as part of the process of continual improvement as well as keeping pace with legislative change. We believe that it is important to empower individuals at all levels and give them the tools and skills they require, through providing relevant training and information, if we are to achieve the standard of health and safety performance to which Photo-Me aspires. Following the gaining of a recognised NEBOSH (National Examining Board of Occupational Health and Safety) qualification, by 10% of our UK employees at various levels in the organisation, there has been a positive response with employees and managers having increased their involvement in health, safety and welfare. Photo-Me also continues to improve the employee induction process and maintains the on-line Safety Media training system to train and refresh employee skills as required. Photo-Me continues to maintain its membership with the British Safety Council. As well as demonstrating our commitment to safety and environmental best practice and continual improvement, this continued partnership provides us with access to expert advice and quality training resources which assists us in achieving these goals. In the UK, the Company is accredited under the SAFEcontractor scheme. This accreditation is reviewed annually and requires that all of our Health & Safety policies and procedures are audited by the scheme. We recognise that all employees have an important contribution to make in the ongoing development and implementation of our Health & Safety policies and procedures. This is reflected in the representation from all levels of the business on the Health & Safety Committee. 24 Photo-Me International plcEnvironment As a Company, we recognise our responsibilities towards the environment and the impact of our business activities. The main risks to the business in this area arise from increasing legislation and the cost of waste disposal. The Company has mitigated the exposure to these risks by: • consistently reducing, in previous years, the amount of obligated waste produced. During the current year the UK operations were able to maintain the gains previously achieved; • the recovery, refurbishment and resale of electrical equipment such as minilabs and children’s rides which promote the principle embodied in recent legislation of reuse before recycling. This not only produces cost savings but also creates a source of income; and • where practical, adopting a strategy of upgrading and refurbishing equipment in preference to disposal and replacement. Where possible we endeavour to embrace technological advances to reduce the impact of our operations on the environment. Such initiatives include: • the ability to automatically shut down (and restart) photobooths during closing hours which saves around 30% of power consumption on site; • through remote telemetry systems being able to reduce the number of service visits to a minimum and reduce wastage of consumables; • the substitution of old technology lighting with new low energy lamps in all photobooths. The new Photobooth by Starck uses the latest LED lighting which also eliminates the hazardous waste associated with fluorescent tubes; and • the replacement of the majority of old CRT monitors with new flat screen technology which is more energy efficient and also eliminates the associated hazardous waste. Although we are not presently exposed to material risks related to climate change, we are taking proactive steps to ensure that our energy use and demand on natural resources are reduced wherever possible. In addition to the examples highlighted above, Photo-Me operates a green fleet policy which specifies that vehicles are sourced according to practicality and environmental impact as defined in terms of CO2 emissions. We have achieved the target set last year of further reducing vehicle CO2 ratings by 2%, to a total of 18% compared to the 2008 fleet, which will save 80 tonnes of CO2 from entering the atmosphere each year. This is supported by the Company’s Road Risk Policy which assists in reducing fuel consumed as well as an overall reduction in the number of miles driven. 25 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Remuneration Report The Remuneration Committee In line with the requirements of the UK Corporate Governance Code (the “Code”), the Committee operates within agreed terms of reference and has responsibility for determining the remuneration of the Chairman, the executive directors and the Group’s other senior executives. As explained below, the Board confirms that the Company has complied throughout the relevant year with the provisions of the Code relating to directors’ remuneration. The directors who served on the Committee throughout the year were as follows: Emmanuel Olympitis (Committee Chairman) John Lewis Jean-Marcel Denis Date of appointment as Committee Member 7 December 2009 9 July 2008 1 March 2012 The Committee is advised by New Bridge Street, part of Aon plc, which has been appointed by the Committee and which advises it on various matters relating to the remuneration of the Chairman, executive directors and senior executives. New Bridge Street also provides advice to the executive directors in respect of the remuneration of non-executive directors. Under long-standing relationships, other Aon plc subsidiaries provided pension scheme management, actuarial services and general insurance broking services to the Company, during the year. The Remuneration Committee is satisfied that these additional services received by the Company do not prejudice the independence of the remuneration advice provided to it by New Bridge Street. The Committee also receives advice from the Chief Executive Officer in relation to the remuneration of certain senior executives (but not in relation to his own remuneration). The Company Secretary is secretary to the Committee. The terms of reference of the Committee can be found in the investor relations section of the Company’s website. This report will be submitted to the forthcoming Annual General Meeting (AGM) for approval. Remuneration policy for executive directors The Committee’s remuneration policy for the executive directors is to have regard to the directors’ experience and the nature and complexity of their work in order to provide a competitive remuneration package that attracts, retains and motivates high calibre executives from whom first class performance is expected. The remuneration policy is also intended to be consistent with the Company’s business objectives, risk profile and shareholder interests. The Committee also ensures that, when determining the executive directors’ remuneration packages, due account is taken of pay and general employment conditions elsewhere in the Group, liaising with the Human Resources department where appropriate. In order to align the interests of shareholders and executive directors, a significant proportion of the remuneration of executive directors is performance-related through an annual bonus plan and the grant of share options. The Committee will ensure that the incentive structures for executive directors and senior managers will not raise environmental, social or governance (“ESG”) risks by inadvertently motivating irresponsible behaviour. More generally, with regard to overall remuneration structures, there is no restriction on the Committee which prevents it from taking into account ESG matters, nor do these remuneration structures encourage inappropriate operational risk-taking. The remuneration packages of the executive directors can comprise the following main elements: • Basic salary • Annual bonus • Share options • Pensions • Other benefits 26 Photo-Me International plcBasic salary Since his appointment as Chief Executive Officer in July 2009 to the end of the period under review, Serge Crasnianski has received a basic annual salary of £121,000 and a third party company supplying Serge Crasnianski’s services to the Company has received annual fees of £325,000; in aggregate £446,000. Since her appointment in September 2009 to the end of the period under review, Françoise Coutaz-Replan, Group Finance Director, has received a basic annual salary of £150,000. The basic salaries of the executive directors are reviewed annually by the Committee. In conducting this review, the Committee takes account of the terms of existing service contracts (including the modest pension provision, compared to the market) and the performance of the individual executive director concerned. The Committee also has regard to the pay of staff and management generally within the Group and takes into consideration the levels of basic salary paid by other relevant companies of similar size and standing, and market levels generally. The basic salaries of all executive directors are reviewed annually on 1 May. No executive directors received increases in their basic salaries during the year under review. Annual bonus The executive directors are eligible for annual bonuses based upon the financial performance of the Group and the attainment of personal objectives. The maximum award level for the year under review and the forthcoming year for Serge Crasnianski was 100% of basic salary and for Françoise Coutaz-Replan it was 50% of basic salary. In respect of Serge Crasnianski, the whole of his bonus relates to the Group’s pre-tax profit performance, with 75% of basic salary being paid as a bonus if pre-tax profit for the year exceeded that of the previous year and a 100% bonus for exceeding the previous year by 5%. If the Group’s pre-tax profit is less than that of the previous year, any bonus will be entirely at the discretion of the Committee. The bonus for Françoise Coutaz-Replan is based on a similar sliding scale, with the relevant percentages being 25% and 35% of her basic salary. In addition, a further bonus of up to 15% of her basic salary will be awarded for the achievement of personal objectives. The contracts of Serge Crasnianski and Françoise Coutaz-Replan provide that, if the Remuneration Committee so decides at its sole option, a maximum of 50% of any bonus awarded may be paid in the form of shares in the Company which must be held by the director for a minimum period of three years from the date of issue, whilst remaining in the Company’s employment. In accordance with the targets set for the year, the Committee has determined that, as the Group’s pre- tax profit improved by more than 5% for the year to 30 April 2013 (in fact, by 20%), a 100% bonus will be paid to Serge Crasnianski and a 35% bonus will be paid to Françoise Coutaz-Replan. The Committee has also decided that a 15% bonus will be paid to Françoise Coutaz-Replan in respect of the achievement of her personal objectives for the year. Having regard to the existing substantial share interests of Serge Crasnianski in the Company, and the level of bonus earned by Françoise Coutaz-Replan, the Committee has decided that the bonuses to both executives should be paid fully in cash, for the year under review. The Committee envisages that the bonus opportunity of both executives for the forthcoming year will be structured in a similar manner to that described above. Share options In 2004, the Company introduced the Photo-Me Executive Share Option Scheme (the “Scheme”), which operates as the sole long-term incentive arrangement for the Company’s executive directors and senior employees. The main features of the Scheme are that options may be granted over shares worth up to 150% of a participant’s salary, each year. The vesting of options is subject to an earnings per share (“EPS”) based performance condition relating to the extent to which the Company’s EPS for the third financial year end, following the date of grant, reaches a sliding scale of challenging EPS targets. Absolute EPS targets are used as the Committee believes that the Company’s senior executive team should have a transparent incentive which focuses them on delivering substantial EPS growth over subsequent three year periods. The extent to which these targets are met will be determined by the Committee, with the assistance of external consultants to ensure independent verification. Options will normally be exercisable between three and seven years after grant. 27 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Remuneration Report continued Share options continued The only options granted to current directors under the Scheme have been to Françoise Coutaz-Replan and are summarised in Table 3 on page 30. Options were granted in the year under review to Françoise Coutaz- Replan on 4 July 2012 (the option cost representing 60.58% of her salary). The performance condition that applies to this 2012 award is based on the extent to which (if at all) the Company’s adjusted EPS for the financial year ending 30 April 2015 (“EPS 2015”) reaches a sliding scale of challenging EPS targets. No part of an option will become exercisable unless adjusted EPS 2015 is at least 4.3p, in which case the options will become exercisable as follows: EPS 2015 4.3p 4.9p 5.5p Portion of option that becomes exercisable Up to 25% of salary Up to 50% of salary Up to 75% of salary Between the above points On straight-line basis between the above No other current director, including Serge Crasnianski, had any interests in share options in the year under review. At present, options over approximately 1.5% of the Company’s issued share capital subsist. The Committee will keep under review the Company’s share-based long-term incentive policy, to ensure that it supports the Company’s strategic objectives. Pensions (Audited information) The service agreement of Serge Crasnianski makes no provision for pension contributions by the Company. Other executive directors with salaries paid by the Company in the UK are entitled to join the Company’s Group Personal Pension Plan, to which the Company contributes 5% of their basic salaries. This only applied to Françoise Coutaz-Replan, for whom the Company contributions at the rate of 5% of her basic salary were: Françoise Coutaz-Replan 2013 £ 7,500 2012 £ 7,500 Other benefits Executive directors are provided with employment-related benefits which can include a company car, private medical insurance and an overseas housing allowance for any director whilst working outside his or her country of normal residence. Service agreements Executive directors have service agreements with the Company. No executive directors are (or were) appointed for a specified period. The contractual arrangements with Serge Crasnianski are dated 22 July 2010. The service agreement of Serge Crasnianski and the consultancy services agreement with a third party company which supplies Serge Crasnianski’s services to the Company both provide that they are terminable by the Company on giving 12 months’ notice. Françoise Coutaz-Replan has a service agreement with the Company dated 9 December 2009 which is terminable by the Company on giving six months’ notice. The Committee’s policy is that no future executive director’s service agreement shall be for a fixed term nor shall be terminable on giving more than 12 months’ notice and that such agreement shall contain no provisions for the payment of liquidated damages on termination, which the Committee considers appropriately reflects market and best practices. Within the restrictions imposed by the relevant service agreements, the Committee will apply the principle of mitigation when determining any payment of compensation on an executive director’s termination. Emmanuel Olympitis is submitting himself for re-election at the Annual General Meeting of the Company to be held on 12 September 2013. Under his contract with the Company, failure to be re-elected in such a case is a ground for automatic termination without compensation. 28 Photo-Me International plcRemuneration of non-executive directors The remuneration of the Chairman is determined by the Remuneration Committee and the fees of the non-executive directors are determined by the Chairman and the executive directors, in both cases taking into account the level of fees paid by companies of a similar size and standing, together with each non- executive director’s time commitment. Non-executive directors are not entitled to participate in any Group pension scheme nor will they be granted any awards under the Company’s option schemes or annual bonus plan. No non-executive directors receive any benefits-in-kind. All non-executive directors are appointed for specified terms subject to re-election at the AGM immediately following their appointment and every three years thereafter. None of the non-executive directors will ordinarily be entitled to compensation upon termination of their involvement with the Company. However, if a non-executive director should be removed as a result of a resolution duly proposed and resolved by members of the Company during the non-executive director’s normal term of appointment, he will be entitled to compensation equal to three months’ fees, six months in the case of the Chairman. Non-executive directors John Lewis Yitzhak Apeloig Jean-Marcel Denis Emmanuel Olympitis Date of last appointment End of period of appointment AGM 2011 AGM 2012 AGM 2012 AGM 2010 AGM 2014 AGM 2015 AGM 2015 AGM 2013 Appointments outside the Group It is the Committee’s policy that, in appropriate circumstances, executive directors will be allowed to accept outside appointments. Whether or not an executive director would be entitled to retain any related fees will be determined on a case-by-case basis. No such outside appointments currently exist. Directors’ remuneration Table 1 (Audited information) Details of the individual directors’ emoluments for the year are as follows: Executive directors Serge Crasnianski Françoise Coutaz-Replan Non-executive directors John Lewis Yitzhak Apeloig Jean-Marcel Denis Emmanuel Olympitis Dan David Salary/Fees £ Note Bonus(1) £ Benefits(2) £ Total £ 2013 2012 Total £ 3 4 5 6 7 446,000 150,000 446,000 75,000 7,487 21,500 899,487 246,500 898,693 245,414 120,000 35,000 40,000 45,000 – – – – – – – – – – – 120,000 120,000 35,000 40,000 45,000 – 5,205 6,667 45,000 18,542 836,000 521,000 28,987 1,385,987 1,339,521 Notes: 1. Bonuses are those awarded in respect of performance in the financial year. 2. Benefits can include private medical insurance, company cars and overseas housing allowances. 3. The emoluments of Serge Crasnianski shown above, include fees and bonus totalling £650,000 (2012: £650,000) payable to a third party in respect of making available the services of Serge Crasnianski to the Company. 4. The emoluments of John Lewis shown above, include fees of £90,000 (2012: £90,000) paid to a third party in respect of making available the services of John Lewis to the Company. 5. Yitzhak Apeloig was appointed to the Board on 8 March 2012. 6. Jean-Marcel Denis was appointed to the Board on 1 March 2012. 7. Dan David died on 6 September 2011. 29 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Remuneration Report continued Directors’ interests Table 2 Interests in shares According to the records kept by the Company, the directors had interests in the share capital of the Company as shown below. All interests shown are beneficial. The interests in Ordinary shares at 26 June 2013 are analysed between those registered in their own names, and those registered in other names. Executive directors Serge Crasnianski Françoise Coutaz-Replan Non-executive directors John Lewis Yitzhak Apeloig Jean-Marcel Denis Emmanuel Olympitis Table 3 (Audited information) Interests in share options 1 May 2012 30 April 2013 Self Other Total 26 June 2013 79,783,450 79,783,450 63,750 79,719,700 79,783,450 80,000 161,800 161,800 – – – – – – 45,000 45,000 – – – – – – – – 161,800 – – – 45,000 45,000 Françoise Coutaz-Replan Number of options Date of grant As at 1 May 2012 Granted during year Exercised during year As at 30 April 2013 Exercise price Date from which exercisable Expiry date 20 Jan 2010 250,000 4 Jul 2011 50,000 13 Dec 2011 250,000 – – – 4 Jul 2012 – 232,000 81,800 168,200 36.67p 20 Jan 2013 19 Jan 2017 – – – 50,000 65.25p 4 Jul 2014 3 Jul 2018 250,000 232,000 53.50p 13 Dec 2014 12 Dec 2018 39.17p 4 July 2015 3 Jul 2019 No other directors have been granted options over shares of the Company. No options lapsed during the year to 30 April 2013. The gain on the exercise of share options by Françoise Coutaz-Replan during the year to 30 April 2013, calculated on the difference between the exercise price (36.67p) and the closing market price (74.0p) on the day of exercise, was £30,536 (2012: £10,599). Françoise Coutaz-Replan did not realise this gain in the year to 30 April 2013 as she retained all of the shares issued on exercise of these options. 30 Photo-Me International plcOptions granted under the terms of the Photo-Me Executive Share Option Scheme were issued at nil cost to the option holder. The performance condition that applied to the 20 January 2010 grants was based on the extent to which (if at all) the Company’s adjusted EPS for the financial year ending 30 April 2012 (“EPS 2012”) reached a sliding scale of challenging EPS targets. No part of an option would become exercisable unless adjusted EPS 2012 was at least 2.4p, in which case an option will become exercisable as follows: EPS 2012 2.4p 3.0p 3.6p Portion of option that becomes exercisable Up to 25% of salary Up to 50% of salary Up to 75% of salary Between the above points On straight-line basis between the above The options awarded to Françoise Coutaz-Replan in January 2010 did not exceed 75% of her salary. As the EPS actually achieved for the year to 30 April 2012 at 3.97p exceeded 3.6p, all outstanding options granted in January 2010 were capable of being exercised from 20 January 2013. The performance condition that applies to the July and December 2011 grants is based on the extent to which (if at all) the Company’s adjusted EPS for the financial year ending 30 April 2014 (“EPS 2014”) reaches a sliding scale of challenging EPS targets. No part of an option will become exercisable unless adjusted EPS 2014 is at least 4.3p, in which case the options will become exercisable as follows: EPS 2014 4.3p 4.9p 5.5p 6.1p Portion of option that becomes exercisable Up to 25% of salary Up to 50% of salary Up to 75% of salary up to 100% of salary Between the above points On straight-line basis between the above The options awarded in July and December 2011 to Françoise Coutaz-Replan represented 21.75% and 89.17% of her salary, respectively. Details of the performance condition attached to the 2012 options are set out in the Share options section earlier in this report. The middle market price of an Ordinary share at the end of the financial year was 77.75p (2012: 45.25p). The highest and lowest middle market prices of an Ordinary share during the year to 30 April 2013 were 82.50p and 36.25p respectively. 31 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Remuneration Report continued Performance graph The graph below shows the Company’s performance, measured by total shareholder return, compared with the performance of the FTSE SmallCap Index over the past five years. As the Company has been a constituent of the FTSE SmallCap Index for all of the relevant period, this index is considered an appropriate form of ‘broad equity market index’ against which the Company’s performance should be compared. Performance is measured by Total Shareholder Return (share price growth plus dividends reinvested). 600 500 400 300 200 100 0 30 April 2008 30 April 2009 30 April 2010 30 April 2011 30 April 2012 30 April 2013 Photo-Me International FTSE SmallCap Index This graph shows the value, by 30 April 2013, of £100 invested in Photo-Me International on 30 April 2008 compared with the value of £100 invested in the FTSE SmallCap Index. The other points plotted are the values at intervening financial year-ends. Pension contributions, tables 1 and 3 and related footnotes and paragraphs are audited information. By order of the Board Emmanuel Olympitis Chairman of the Remuneration Committee 26 June 2013 32 Photo-Me International plcStatement of Directors’ Responsibilities in respect of the Annual Report and the financial statements The directors of the Company who are named on pages 14 and 15 are responsible for preparing the Annual Report, the Report of the Directors and the Group and the Company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for the Group and the Company for each financial year. Under that law the directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and applicable law and have elected to prepare the Company’s financial statements on the same basis. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of their profit or loss for that period. In preparing each of the Group and the Company’s financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and accounting estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the EU; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that their financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and as regards the Group’s financial statements, Article 4 of the IAS Regulation. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Responsibility statement of the directors in respect of the annual financial report Each of the directors of the Company whose names and functions are listed on pages 14 and 15 confirms that, to the best of their knowledge: • the financial statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and • the Business and Financial Review, which is incorporated into the Report of the Directors, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. By order of the Board John Lewis Non-executive Chairman 26 June 2013 33 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Independent Auditor’s Report to the members of Photo-Me International plc We have audited the financial statements of Photo-Me International plc for the year ended 30 April 2013 set out on pages 36 to 91. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 33, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 April 2013 and of the Group’s profit for the year then ended; • the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; • the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and • the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 34 Photo-Me International plcMatters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: • the directors’ statement, set out on page 33, in relation to going concern; • the part of the Corporate Governance Statement on pages 19 to 22 relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and • certain elements of the report to shareholders by the Board of directors’ remuneration. Mark Sheppard (Senior Statutory Auditor) for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants 1 Forest Gate Brighton Road Crawley RH11 9PT 26 June 2013 35 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Group Statement of Comprehensive Income for the year ended 30 April 2013 Revenue Cost of sales Gross profit Other operating income Administrative expenses Share of post-tax profits from associates Operating profit Finance revenue Finance cost Profit before tax Total tax charge Profit for year Notes 3 4 14 3 6 6 7 4 Other comprehensive income Items that are or may subsequently be classified to profit and loss: Exchange differences arising on translation of foreign operations Translation reserve taken to income statement on disposal Total items that are or may subsequently be classified to profit and loss Items that will not be classified to profit and loss: Actuarial movements in defined benefit obligations and other post-employment benefit obligations Deferred tax on actuarial movements Total items that will not be classified to profit and loss Other comprehensive expense (net of tax) Total comprehensive income for the year Profit for the year attributable to: Owners of the Parent Non-controlling interests Total comprehensive income attributable to: Owners of the Parent Non-controlling interests Earnings per share Basic earnings per share Diluted earnings per share 10 10 2013 £’000 195,590 (153,363) 42,227 1,138 (19,221) 55 24,199 533 (426) 24,306 (6,746) 17,560 (2,161) – (2,161) 15 (308) (293) (2,454) 15,106 17,405 155 17,560 14,910 196 15,106 4.78p 4.76p 2012 £’000 207,841 (169,340) 38,501 1,194 (19,765) 89 20,019 844 (723) 20,140 (5,594) 14,546 (2,841) (12) (2,853) (531) 118 (413) (3,266) 11,280 14,349 197 14,546 11,175 105 11,280 3.97p 3.95p The notes on pages 42 to 91 are an integral part of these consolidated financial statements. 36 Photo-Me International plcStatements of Financial Position as at 30 April 2013 Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment Investment property Investments – in associates Investments – in subsidiaries Other financial assets – held to maturity Other financial assets – available-for-sale Deferred tax assets Trade and other receivables Current assets Inventories Trade and other receivables Other financial assets – held to maturity Other financial assets – available-for-sale Current tax Cash and cash equivalents Total assets Equity Share capital Share premium Treasury shares Translation & other reserves Retained earnings Equity attributable to owners of the Parent Non-controlling interests Total equity Liabilities Non-current liabilities Financial liabilities Post-employment benefit obligations Provisions Deferred tax liabilities Trade and other payables Current liabilities Financial liabilities Provisions Current tax Trade and other payables Total equity and liabilities Group 2013 £’000 2012 £’000 Company 2013 £’000 2012 £’000 Notes 11 11 12 13 14 14 24 16 17 16 18 20 21 22 23 24 25 21 23 25 9,980 6,735 45,334 723 790 – 2,447 81 2,157 1,691 69,938 13,241 12,848 14 88 30 59,651 85,872 155,810 1,856 6,287 – 16,723 72,295 97,161 1,197 98,358 236 3,765 7 858 4,981 9,847 543 8,297 6,549 32,216 47,605 155,810 9,895 8,958 46,128 1,147 592 – 2,176 80 3,148 1,473 73,597 16,931 14,302 213 5 19 54,605 86,075 159,672 1,850 5,873 (5,802) 18,925 74,994 95,840 1,001 96,841 776 4,285 77 2,508 5,646 13,292 4,386 4,957 5,368 34,828 49,539 159,672 – 21 7,931 – 440 41,409 958 – 2,029 71 52,859 892 5,627 – 2 – 15,501 22,022 74,881 1,856 6,287 – 1,024 48,265 57,432 – 57,432 – – 3 – – 3 – 1 1,077 16,368 17,446 74,881 – 29 6,687 – 258 41,269 604 – 2,784 – 51,631 1,157 5,460 – 5 – 10,862 17,484 69,115 1,850 5,873 (5,802) 885 46,758 49,564 – 49,564 – 182 3 – – 185 – 15 356 18,995 19,366 69,115 The notes on pages 42 to 91 are an integral part of these consolidated financial statements. The accounts were approved by the Board on 26 June 2013. Serge Crasnianski Chief Executive Officer Françoise-Coutraz Replan Group Finance Director Annual Report for the year ended 30 April 2013 37 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany Information Group Statement of Cash Flows for the year ended 30 April 2013 Notes Cash flows from operating activities Profit before tax Finance cost Finance revenue Operating profit Share of post-tax profit from associates Amortisation of intangible assets Depreciation of property, plant and equipment Profit on sale of property, plant and equipment Exchange differences Other items Changes in working capital: Inventories Trade and other receivables Trade and other payables Provisions Cash generated from operations Interest paid Taxation paid Net cash generated from operating activities Cash flows from investing activities Investment in associates Loan advanced to associates Investment in intangible assets Proceeds from sale of intangible assets Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Purchase of available-for-sale investments Proceeds from sale of available-for-sale investments Interest received Dividends received from associate Net cash utilised in investing activities Cash flows from financing activities Issue of Ordinary shares to equity shareholders Sale of Treasury shares Repayment of capital element of finance leases Repayment of borrowings Increase in assets held to maturity Dividends paid to owners of the Parent Dividends paid to non-controlling interests Net cash utilised in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange loss on cash and cash equivalents 2013 £’000 24,306 426 (533) 24,199 (55) 4,285 16,443 (2,698) (126) 222 3,966 374 (2,738) 2,738 46,610 (423) (7,276) 38,911 (118) (129) (1,859) 133 (17,256) 3,659 (86) – 533 – 2012 £’000 20,140 723 (844) 20,019 (89) 3,277 20,737 (69) (905) (1,010) 2,650 5,540 (8,894) 1,170 42,426 (649) (5,314) 36,463 (62) – (2,477) – (15,865) 866 (387) 528 434 101 (15,123) (16,862) 420 5,749 (126) (4,489) (21) 9 (19,970) – (18,437) 5,351 54,605 (305) 59,651 161 – (643) (11,148) (433) (7,232) (39) (19,334) 267 56,212 (1,874) 54,605 Cash and cash equivalents at end of year 18 The notes on pages 42 to 91 are an integral part of these consolidated financial statements. 38 Photo-Me International plcCompany Statement of Cash Flows for the year ended 30 April 2013 Cash flows from operating activities Profit before tax Finance cost Finance revenue Dividends and other items Operating profit Amortisation of intangible assets Depreciation of property, plant and equipment Profit on sale of property, plant and equipment Movements in investment provisions and other items Changes in working capital: Inventories Trade and other receivables Trade and other payables Provisions Cash generated from operations Interest paid Taxation paid Net cash generated from operating activities Cash flows from investing activities Investments in subsidiaries Investment in associates Proceeds from disposal of subsidiaries Purchase of intangible assets Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Loans advanced to associates Repayments of loans advanced to subsidiaries Interest received Dividends received from associate and subsidiaries Net cash generated from investing activities Cash flows from financing activities Issue of Ordinary shares to equity shareholders Sale of Treasury shares Borrowings from subsidiaries Repayment of borrowings Repayment of borrowings from subsidiaries Increase in assets held to maturity Dividends paid to owners of the Parent Net cash utilised in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Notes 2013 £’000 24,150 72 (259) 2012 £’000 14,100 15 (290) (18,150) (10,634) 5,813 14 2,588 (71) (31) 266 (195) (5,783) (196) 2,405 (69) (1,051) 1,285 (1) (182) – (7) 3,191 21 3,636 (114) 15 576 (780) (3,197) (334) 3,014 (64) (380) 2,570 – – 15 (28) (4,167) (2,596) 404 (129) 87 198 18,150 14,353 420 5,749 3,275 – (119) (354) (19,970) (10,999) 4,639 10,862 15,501 164 – 35 63 10,634 8,287 161 – – (6,000) (58) (604) (7,232) (13,733) (2,876) 13,738 10,862 9 18 Annual Report for the year ended 30 April 2013 39 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationGroup Statement of Changes in Equity for the year ended 30 April 2013 Share capital £’000 Share premium £’000 Treasury shares £’000 Other reserves £’000 Translation reserve £’000 Retained earnings £’000 1,844 5,718 (5,802) 2,430 19,256 64,374 At 1 May 2011 Profit for year Other comprehensive (expense)/income Exchange differences Translation reserve taken to income statement on disposal of subsidiaries Actuarial movement in defined benefit pension scheme and other post- employment benefit obligations Deferred tax on actuarial movements Total other comprehensive expense Total comprehensive (expense)/ income for the year Transactions with owners of the Parent Shares issued in period Share options Dividends Total transactions with owners of the Parent At 30 April 2012 At 1 May 2012 Profit for year Other comprehensive (expense)/income Exchange differences Actuarial movement in defined benefit pension scheme and other post- employment benefit obligations Deferred tax on actuarial movements Total other comprehensive (expense)/income Total comprehensive (expense)/ income for the year Transactions with owners of the Parent Shares issued in period Share options Sale of Treasury shares Dividends Total transactions with owners of the Parent – – – – – – – 6 – – 6 1,850 1,850 – – – – – – 6 – – – 6 – – – – – – – 155 – – 155 5,873 5,873 – – – – – – 362 – 52 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 5,802 – – – – – – – – – – – – Attributable to owners of the Parent £’000 Non- controlling interests £’000 Total £’000 87,820 14,349 935 88,755 197 14,546 (2,749) (92) (2,841) (12) (531) 118 – – – (12) (531) 118 (3,174) (92) (3,266) – 14,349 (2,749) (12) – – (2,761) – – (531) 118 (413) (2,761) 13,936 11,175 105 11,280 – – – – – 302 (3,618) (3,316) – 17,405 161 302 (3,618) (3,155) 95,840 95,840 17,405 – – 161 302 (39) (3,657) (39) (3,194) 1,001 96,841 1,001 96,841 155 17,560 (2,202) – (2,202) 41 (2,161) – – 15 (308) 15 (308) – – 15 (308) (2,202) (293) (2,495) 41 (2,454) (2,202) 17,112 14,910 196 15,106 – – – – – – 212 (53) 368 212 5,801 (19,970) (19,970) (19,811) (13,589) – – – 368 212 5,801 – (19,970) – (13,589) (5,802) 2,430 16,495 74,994 (5,802) 2,430 16,495 74,994 414 5,802 At 30 April 2013 1,856 6,287 – 2,430 14,293 72,295 97,161 1,197 98,358 The notes on pages 42 to 91 are an integral part of these consolidated financial statements. Details of share capital and reserves are given in note 20. 40 Photo-Me International plcCompany Statement of Changes in Equity for the year ended 30 April 2013 Share capital £’000 Share premium £’000 Treasury shares £’000 Other reserves £’000 Retained earnings £’000 1,844 5,718 (5,802) 652 – 37,206 13,162 Total £’000 39,618 13,162 At 1 May 2011 Profit for year Other comprehensive (expense)/income Actuarial movement in defined benefit pension scheme and other post- employment benefit obligations Deferred tax on actuarial movements Total other comprehensive expense Total comprehensive income for the year Transactions with owners of the Parent Shares issued in period Share options Capital contribution relating to share-based payments (net of disposals) Dividends Total transactions with owners of the Parent At 30 April 2012 At 1 May 2012 Profit for year Other comprehensive expense Actuarial movement in defined benefit pension scheme and other post- employment benefit obligations Deferred tax on actuarial movements Total other comprehensive expense Total comprehensive income for the year Transactions with owners of the Parent Shares issued in period Share options Sale of Treasury shares Capital contribution relating to share-based payments (net of disposals) Dividends Total transactions with owners of the Parent – – – – – 6 – – – 6 1,850 1,850 – – – – – 6 – – – – 6 – – – – – – – – – – (5,802) (5,802) – – – – – – – 5,802 – – – – – – – 155 – – – 155 5,873 5,873 – – – – – 362 – 52 – – 414 6,287 At 30 April 2013 1,856 Details of share capital and reserves are given in note 20. – – – – – – 233 – 233 885 885 – – – – – – – – (53) (8) (61) (53) (8) (61) 13,101 13,101 – 69 – (3,618) (3,549) 46,758 46,758 21,888 161 69 233 (3,618) (3,155) 49,564 49,564 21,888 (166) (265) (431) (166) (265) (431) 21,457 21,457 – 73 368 73 (53) 5,801 139 – 139 – (19,970) (19,970) 5,802 139 (19,950) (13,589) – 1,024 48,265 57,432 41 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Notes to the Financial Statements Authorisation of the financial statements and statement of compliance with IFRSs The Group and the Company financial statements of Photo-Me International plc (the “Company”) for the year ended 30 April 2013 were authorised for issue by the directors on 26 June 2013 and the statements of financial position were signed by S Crasnianski, Chief Executive Officer and F Coutaz-Replan, Group Finance Director. The Company is a public limited company incorporated and registered in England and Wales and whose shares are quoted on the London Stock Exchange, under symbol PHTM. The registered number of the Company is 735438 and its registered office is at Church Road, Bookham, Surrey KT23 3EU. The principal activities of the Group are shown on page 16. The Group’s and the Company’s financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”), as adopted by the European Union (“EU”), International Financial Reporting Interpretations Committee (“IFRIC”) interpretations and in accordance with the provisions of the Companies Act 2006 applicable to companies reporting under IFRS. The Company has taken advantage of the exemption provided under Section 408 of the Companies Act 2006 not to publish its individual income statement and related notes. 1 Accounting policies The principal accounting policies adopted in the preparation of the Group’s consolidated financial statements and the Company’s individual financial statements are set out below. The policies have been consistently applied to all of the statements presented. New standards adopted for this financial year are shown in note 2 below. Following the Financial Reporting Council’s (FRC) objective in “cutting clutter” from financial statements, the directors have reviewed the notes and disclosures in this year’s report and accounts. The aim of this exercise has been to simplify the format and content of certain notes and remove non-material disclosures. 1.1 Basis of preparation The consolidated financial statements have been prepared under the historical cost convention except for certain derivative financial instruments and available-for-sale financial assets that are measured at fair value. Going concern The financial statements of the Group and the Company have been prepared on the going concern basis. In reaching this conclusion management has reviewed detailed budgets, which reflect, where applicable, the current economic conditions, with regard to the level of demand for the Group’s manufactured products, the level of consumer confidence, the uncertainty of the Euro, and cash flow forecasts for the next financial year and high level projections thereafter. The cash flow projections indicate that the Group and the Company will remain comfortably within their available banking facilities. Additional information on these facilities is provided in note 15. A review of the business activity, future prospects and financial position of the Group are covered in the Chairman’s Statement and the Business and Financial Review. Critical accounting estimates and key judgements The preparation of the financial statements in accordance with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the year end and the reported amounts of revenues and expenses during the reported period. Although these estimates are based on the directors’ best knowledge of current events and actions, actual results may ultimately differ from those estimates. The critical accounting policies, which the directors consider are of greater complexity and/or particularly subject to the exercise of judgement, are included in the following notes. Group 1) Goodwill and other intangible assets – notes 1.4, 1.8 and 11. 2) Development costs – notes 1.4 and 11. 3) Depreciation and impairment of property, plant and equipment – notes 1.5, 12 and 13. 4) Taxation – notes 1.17, 7 and 24. 42 Photo-Me International plcCompany Critical assumptions and estimates for the preparation of the Company’s financial statements, in addition to 3 and 4 above, include: Investments in subsidiaries Management makes decisions on the carrying value of investments in subsidiaries and whether an impairment is required, as detailed in note 1.8 and 1.9 below. 1.2 Basis of consolidation The Group consolidates the financial statements of the Company and all of its subsidiaries, and includes associates under the equity method, as at 30 April each year. Subsidiaries Subsidiaries are those entities in which the Group has an interest of more than 50% of the voting rights or otherwise has the power to govern the financial and operating policies of that entity so as to obtain benefits from its activities. The principal subsidiaries affecting the results and financial position of the Group are shown in note 29. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date control ceases. The Group uses the acquisition method of accounting to account for business combinations. Acquisition costs for business combinations are expensed as incurred. On an acquisition by acquisition basis the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. Assets and liabilities, including any contingent consideration arrangements of the acquired business, and contingent liabilities are valued at fair value as is the equity interest issued by the Group. The difference between the consideration transferred less the amount of any non-controlling interests in the acquiree and the acquisition date fair value of net assets acquired is recorded as goodwill. In the case of a bargain purchase, when the consideration transferred is less than the net assets of the subsidiary acquired, the difference is recognised as a profit in the statement of comprehensive income. For acquisitions made before 1 May 2010, goodwill represents the excess of the cost of the acquisition over the Group’s interest in the recognised amount (generally fair value) of the identifiable assets, liabilities and contingent liabilities of the acquiree. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurred in connection with business combinations were capitalised as part of the cost of the acquisition. In respect of acquisitions made prior to IFRS transition, goodwill was included at transition date on the basis of deemed cost, which represented the amount recorded under UK Generally Accepted Accounting Principles (UK GAAP). Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated. Where necessary, subsidiaries’ accounting policies have been changed to ensure consistency with the Group’s policies. Associates Associates are those entities in which the Group generally has an interest of between 20% and 50% of the voting rights and has significant influence, but not control (or joint control) over the financial and operating policies of the entity. The Group uses the equity method of accounting for associates. The principal associates affecting the results and financial position of the Group are shown in note 29. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses unless it has incurred obligations or made payments on behalf of the associate. If the associate subsequently reports profits, the Group resumes recognition of its share of those profits only after its share of the profits equals the share of the losses not recognised. Non-controlling interests Non-controlling interests represent the portion of results for the period and net assets not held by the Group and are presented separately within the statement of comprehensive income and the statement of financial position. Transactions with non-controlling interests are treated as transactions with equity owners of the Group. For purchases of non-controlling interests, the difference between any consideration paid and the relevant share of net assets acquired is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. 43 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 20131 Accounting policies continued 1.3 Foreign currency translation The consolidated financial statements and the Company’s own financial statements are presented in Sterling, the functional and presentational currency of the Parent Company and all values are shown in £’000 except where indicated. Transactions in foreign currencies are translated into the respective functional currencies of the Group’s subsidiaries at the exchange rate ruling on the date the transaction is recorded. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rates ruling at 30 April. Exchange gains and losses resulting from the above translation are reflected in the income statement, except where they qualify as cash flow hedges and are reflected in equity. Income statements of overseas entities are translated into Sterling, at weighted average rates of exchange, as a reasonable approximation to actual exchange rates at the date of the transaction and their balance sheets are translated at the exchange rate ruling at 30 April. Exchange differences arising on the translation of opening net assets are taken to equity, as is the exchange difference on the translation of the income statement between average and closing exchange rates. Such cumulative exchange differences are released to the income statement on disposal. Goodwill arising on the acquisition of subsidiaries and associates post 1 May 2004 is treated as a foreign currency asset and translated at the rate ruling at 30 April. Goodwill arising on acquisitions before 1 May 2004 was treated as a Sterling amount and for practical reasons cannot be restated as a currency amount. 1.4 Intangible assets Goodwill Goodwill represents the excess of cost of an acquisition of a subsidiary or associate over the fair value of the Group’s share of net identifiable assets at the date of acquisition. Goodwill on acquisition of associates is included in investment in associates. Goodwill is not amortised but is tested annually for impairment or more frequently if events or changes in circumstances indicate that the carrying amounts may be impaired; and is carried at cost less any impairment. On disposals goodwill is included in the calculation of gains or losses on the sale of the previously acquired entity. Goodwill relating to previous acquisitions (pre-1999) was charged under UK GAAP to equity and is not included in the gain or loss on sale of the previously acquired entity to which it relates. For the purposes of impairment testing, goodwill is allocated to cash-generating units. Each of these cash- generating units represents the Group’s investment in each region of operation. Research and development expenditure Research expenditure is expensed as incurred. Costs incurred in developing projects are capitalised as intangible assets when it is considered that the commercial viability of the project will be a success based on discounted expected cash flows, and the costs can be reliably measured. Other development costs are expensed and are not recognised as assets. 44 Photo-Me International plcNotes to the Financial Statements continued Other intangible assets Intangible assets (including research and development) acquired as part of a business combination are capitalised at fair value at the date of acquisition. Other intangibles are capitalised at cost. The policies applied to the Group’s intangible assets are summarised as follows: Useful lives Amortisation Research and development costs Finite Straight-line basis, with a maximum life of four years from commencement of commercial production, with no residual value Software Finite Straight-line basis, with a maximum life of three years, with no residual value Internally generated or acquired Internally generated Acquired Customer related Finite Patents and licences Finite Straight-line basis, with a maximum life of 20 years, with no residual value. Most patents are depreciated over a period of 10 years or less Straight-line basis, with a maximum life of 20 years, with no residual value. The majority of customer related intangible assets are depreciated over their useful lives of between three and five years Acquired Other Indefinite Not amortised, but subject to impairment testing Acquired Acquired 1.5 Property, plant and equipment Property, plant and equipment is shown at cost, less accumulated depreciation and any impairment. Subsequent expenditure on property, plant and equipment is capitalised, either as a separate asset, or included in the cost of the asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost can be measured reliably. The carrying amount of any parts of the assets that are replaced are derecognised. All other costs are recognised in the income statement as an expense as incurred. Freehold land is not depreciated. Other assets are depreciated on a straight-line basis, or occasionally on a reducing balance basis, to reduce cost to the estimated residual value over the estimated useful life of the asset at the following rates: Freehold buildings 2% – 5% straight-line Leasehold improvements over the life of the lease on a straight-line basis Photobooths and vending machines 10% – 33.33% straight-line Plant, machinery, furniture, fixtures and motor vehicles 12.5% – 33.33% straight-line or reducing balance Capitalised finance lease assets over the shorter of the life of the asset or the life of the lease The assets’ residual values and useful lives are reviewed at each year end and adjusted, if appropriate. 1.6 Investment property Certain of the Group’s properties are classified as investment properties; being held for long-term investment and to earn rental income. Investment properties are stated at cost and the building element is depreciated to reduce cost to its estimated residual value at rates between 3.33% and 8.33% on a straight-line basis. 1.7 Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased asset and the present value of lease payments discounted at the interest rate implicit in the lease. The interest element in the lease payment is expensed at a constant interest rate, whereas the obligation net of the interest element is included in other payables. All other leases are classified as operating leases and rentals are expensed over the period of the lease on a straight-line basis. 45 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 20131 Accounting policies continued 1.8 Impairment For goodwill and intangible assets with indefinite lives, the carrying value is reviewed annually for impairment or more frequently if events or changes in circumstances indicate that the carrying amounts may be impaired. Other intangible assets and property, plant and equipment are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying value of the asset is higher than the recoverable amount of the asset an impairment loss is recognised. In carrying out such impairment evaluations the recoverable amount is the higher of the asset’s value in use or its fair value less costs to sell. Assets that do not generate largely independent cash inflows are grouped at the lowest level for which separate identifiable cash flows exist (cash-generating units) and the recoverable amount is determined for the cash-generating unit. If necessary, the carrying value is reduced by charging an impairment loss in the income statement. Reversal of impairment Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that it does not exceed the carrying amount that would have been determined had no impairment loss been recognised. No impairment loss is reversed for goodwill. 1.9 Financial assets Group The Group classifies its financial assets on initial recognition in the following categories. The classification depends on the purpose for which the financial assets were acquired. (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such financial assets arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in trade and other receivables in the statement of financial position. These assets are held at amortised cost using the effective interest rate method. (ii) Held to maturity financial assets These financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has the positive intention and ability to hold to maturity. These assets are held at amortised costs using the effective interest rate method. Included within these amounts are cash deposits that are subject to restrictions and are not freely available for use by the Group until a future date. (iii) Financial assets at fair value through profit or loss A financial asset is classified in this category if acquired principally for the purpose of trading or if so designated by management. Assets held in this category are classified as current assets if expected to be settled within one year; otherwise they are classified as non-current. Financial assets in this category are initially recorded and subsequently valued at fair value, with changes in fair value recognised in the income statement. (iv) Available-for-sale financial assets Financial assets not classified in any of the above categories are shown as available-for-sale financial assets and are shown as non-current assets, unless management intends to sell the financial assets within 12 months of the end of the financial year. These assets are initially recognised at cost and are subsequently carried at fair value. (v) Recognition and measurement For investments designated as financial assets at fair value through profit or loss or available-for-sale financial assets the fair values of quoted investments are based on current bid prices. For unlisted investments the Group uses various valuation techniques to determine fair values, including at cost less any provision for impairment, where appropriate. 46 Photo-Me International plcNotes to the Financial Statements continued At each year end date the Group assesses whether there is objective evidence that a financial asset, or group of financial assets, has become impaired. Any impairment loss so recognised is reflected in the income statement. Indications of impairment may include a reduction in the quoted price, a reduction in the underlying profitability of the investment and other factors indicating that the value of the investment has fallen. Company In the Company statement of financial position, investments in subsidiaries and associates are stated at cost less impairment. The Company reviews, at least annually, the carrying value of investments and performs an impairment exercise. An impairment charge is made where there is evidence that the carrying value exceeds the future cash flows of the investment or where its carrying amount will not be recovered from sale. 1.10 Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes costs incurred in bringing inventories to their present location and condition. The cost of work-in-progress and finished goods includes an appropriate proportion of production overheads. Raw materials and consumables are valued on a first-in first-out basis or on an average cost basis where average cost is not significantly different to first-in first-out due to the fast turnaround of consumables. The Group uses standard costs to value inventory and these standard costs are regularly updated to reflect current prices. 1.11 Trade receivables Trade receivables are stated at fair value and subsequently measured at amortised cost using the effective interest method net of impairment provisions. An impairment provision is reflected in the income statement if there is objective evidence that the Group will not be able to recover the full amount of the receivable. The impairment is calculated as the difference between the carrying value of the receivable and the present value of the expected future cash flows, discounted at the original interest rate. Such factors as the debtor experiencing significant financial difficulties, bankruptcy, financial reorganisation or default on payments are indicators that the receivable is impaired. 1.12 Cash and cash equivalents Cash and cash equivalents are carried in the statements of financial position at cost. Bank overdrafts are included within borrowings in current liabilities in the statements of financial position. For the purposes of the statements of cash flows, cash and cash equivalents comprises cash on hand, unrestricted deposits held at banks with less than three months’ notice and other highly liquid investments with an original maturity of three months or less, less bank overdrafts. 1.13 Share capital Ordinary shares of the Company are classified as equity Where the Company acquires its own equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of tax relief), is deducted from equity attributable to the Company’s equity shareholders until the shares are either cancelled or subsequently reissued. The amount is shown in equity as treasury shares. Where such Ordinary shares (the treasury shares) are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders. 1.14 Borrowings Borrowings are recorded initially at the fair value of the consideration received net of directly attributable transaction costs. After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest rate method. This method includes any initial issue costs and discounts or premiums on settlement. Finance costs on the borrowings are charged to the income statement under the effective interest rate method. Financial liabilities are derecognised when the obligation under the liability is cancelled, discharged or has expired. 47 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 20131 Accounting policies continued 1.15 Employee benefits Pension obligations Group companies have various pension schemes in accordance with local conditions and practices in the countries in which they operate. The Company operates a defined benefit pension scheme, which is closed to new entrants, with contributions made by employees and the Company. The defined benefits are based upon the employee’s length of service and final pensionable salary. The Company also operates a defined contribution pension scheme. The Group also has defined benefit pension schemes as noted in note 22. The liability in respect of defined benefit pension schemes is the present value of the defined benefit obligation at the end of the financial year minus the fair value of the plan assets, measured under the projected unit credit actuarial valuation method. Independent qualified actuaries calculate the obligation for defined benefit pension plans. Independent qualified actuaries formally value the pension funds in accordance with local legislation and these valuations are updated as at each year end. The Group has adopted the provisions of IAS 19, Employee Benefits and where applicable IFRIC 14 and shows actuarial gains and losses in the period in which they arise, in other comprehensive income. When the calculation results in a benefit to the Group, the recognised asset is limited to the total of any unrecognised past service costs and the present value of benefits available in the form of any future refunds from the plan, reductions in future contributions to the plan or on settlement of the plan and takes into account the adverse effect of any minimum funding requirements. Other post-employment benefits In addition to the pension schemes noted above, certain Group companies are required to make provisions for employee retirements. These provisions are based on local circumstances, length of service and salaries of the employees concerned. They are included in post-employment benefit obligations, and shown in note 22 as other retirement provisions. Equity compensation benefits The cost of equity-settled transactions with employees is measured by reference to the fair value at the date of grant, determined using the Black-Scholes model. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”). The cumulative expense recognised at each reporting date until the vesting date, reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of the directors of the Group and based on the best available estimate, at that date, of the number of equity instruments that will ultimately vest. The income statement charge or credit for the period represents the movement in the cumulative expense recognised as at the beginning and end of the period. No expense is recognised for awards that do not ultimately vest. The Group does not have options with market conditions. On exercise of the option the proceeds received are allocated to share capital (nominal value of shares) and share premium. The grant by the Company of options over its equity instruments (Ordinary shares) to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of the employee services received, measured by reference to the grant date fair value, is recognised over the investing period as an increase to the investment in subsidiary undertakings with a corresponding credit to other reserves in equity. Termination benefits Termination benefits are recognised in the income statement in the period when the Group is demonstrably committed to the termination of employment or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. 1.16 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made. Provisions are discounted where the effect of the time value of money is material. 48 Photo-Me International plcNotes to the Financial Statements continued 1.17 Taxation Tax expense for the current period comprises current and deferred tax and is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or equity. The current tax charge is calculated on the basis of the laws enacted or substantively enacted at the balance sheet date in the countries where the Group operates. Deferred tax is provided in full on temporary differences arising between the tax base of assets and liabilities and their carrying value in the accounts. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in future periods in which the temporary difference will reverse, based on tax rates and laws enacted or substantively enacted at the year end. Deferred tax assets are recognised to the extent that it is probable that the future taxable profit, against which the deductible temporary differences can be utilised, will be available. Deferred tax is provided, or an asset recognised, on taxable temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Current tax assets and liabilities are measured at the amounts expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted at the year end. 1.18 Trade and other payables Trade payables are initially recorded at fair value and subsequently recorded at amortised cost using the effective interest rate method. 1.19 Segment reporting Operating segments are reported in a manner consistent with internal reporting provided to the Chief Operating Decision Maker as required by IFRS 8 Operating Segments. Details of the segments are shown in note 3. 1.20 Revenue recognition Revenue from the operation of photobooths and other operating equipment is the cash received, net of value added tax and refunds. Revenue from the sale of goods is recognised upon delivery of products and acceptance, if applicable, by the customer. Revenue is stated net of value added tax and discounts. Revenue from the sale of services, including maintenance contracts and royalty income, is recognised evenly over the period in which the service/licence is provided to the customer. Rental income from investment property and other assets under operating lease contracts is accounted for on a straight-line basis over the lease term and is included in other operating income. Dividend income is recognised when the right to receive payment is established. 1.21 Own work capitalised Some of the Group’s subsidiaries manufacture vending equipment, which is then sold to the Group’s Operations companies and capitalised by them as fixed assets. The amount capitalised includes direct costs associated with the manufacture of such items together with applicable overheads, but excluding general overheads and administration costs. Profits made by the selling company are eliminated on consolidation. 1.22 Dividends Dividends to the Company’s shareholders are recognised as a liability and deducted from shareholders’ equity in the period in which the shareholders’ right to receive payment is established. 1.23 Financial guarantee contracts Where the Company enters into financial guarantee contracts to warranty the indebtedness of one company within the Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee (note 27). 49 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 20132 New standards, amendments and interpretations The following standards have been adopted for the first time in these financial statements. Presentation of Items of Other Comprehensive Income The Group has adopted early the Amendments to IAS 1: Presentation of Other Items of Other Comprehensive Income (mandatory for periods commencing on or after 1 July 2012). The effect of early adoption of this amendment is to present the items of other comprehensive income that may be recycled to profit or loss in the future (if certain conditions are met) separately from those that would never be recycled to profit or loss. Consequently, as the Group presents items of other comprehensive income before related income tax effects, the aggregated income tax amount has been allocated between those sections. The comparatives have been presented on the same basis. Future changes to accounting policies The following adopted IFRSs have been issued but have not been applied in these financial statements. Their adoption is not expected to have a material effect on the financial statements. International Financial Reporting Standards (IFRS) • IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements • IFRS 11 Joint Arrangements and IAS 28 Investments in Associates and Joint Ventures • IFRS 12 Disclosure of Interests in Other Entities • IFRS 13 Fair Value Measurement Amendments to existing standards • Amendment to IAS 32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities • Amendment to IFRS 7 Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities • Amendment to IAS 27 Consolidated and Separate Financial Statements • Amendment to IAS 28 Investments in Associates • Amendment to IAS 19 Employee Benefits • Amendment to IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities • Annual Improvements to IFRS 2009-2011 Cycle – Improvements to IAS 1 Presentation of Financial Statements, IAS 16 Property, Plant and Equipment, IAS 32 Financial Instruments: Presentation and IAS 34 Interim Financial Reporting IFRS 10, IFRS 11 and IFRS 12 are part of a new suite of standards on consolidation and related standards, replacing existing standards on accounting for subsidiaries and joint ventures (now joint arrangements) and making limited amendments in relation to associates. IFRS 13 will replace existing guidance on fair value measurement in different IFRSs with a single definition of fair value, a fair value framework and fair value disclosures. 3 Segmental analysis IFRS 8 requires operating segments to be identified, based on information presented to the Chief Operating Decision Maker in order to allocate resources to the segments and monitor performance. The Group has identified two segments as set out below: (i) Operations: comprises the operation of unattended vending equipment, in particular photobooths, digital printing kiosks, amusement machines and business service equipment. (ii) Sales & Servicing: comprises the development, manufacture, sale and after-sale servicing of this operations equipment and a range of photo-processing equipment, together with the servicing of other third party equipment. The Group monitors performance at the adjusted operating profit level before special items, interest and taxation. 50 Photo-Me International plcNotes to the Financial Statements continued In accordance with IFRS 8, no segment information is provided for assets and liabilities in the disclosures below, as this information is not regularly provided to the Chief Operating Decision Maker. The segment results are as follows: 2013 Total revenue Inter-segment revenue Revenue from external customers EBITDA Depreciation and amortisation Operating profit excluding associates Share of post-tax profit from associates Corporate costs excluding depreciation and amortisation Corporate depreciation and amortisation Operations £’000 Sales & Servicing £’000 173,217 – 173,217 43,846 (15,779) 28,067 47,092 (24,719) 22,373 3,723 (4,361) (638) Operating profit Finance revenue Finance costs Profit before tax Tax Profit for year Capital expenditure Corporate capital expenditure Total capital expenditure 2012 Total revenue Inter-segment revenue Revenue from external customers EBITDA Depreciation and amortisation Operating profit excluding associates Share of post-tax profit from associates Corporate costs excluding depreciation and amortisation Corporate depreciation and amortisation Operating profit Finance revenue Finance costs Profit before tax Tax Profit for year Capital expenditure Corporate capital expenditure Total capital expenditure 17,768 1,206 178,063 – 178,063 44,994 (19,890) 25,104 51,546 (21,768) 29,778 997 (3,511) (2,514) 15,943 2,337 Total £’000 220,309 (24,719) 195,590 47,569 (20,140) 27,429 55 (2,697) (588) 24,199 533 (426) 24,306 (6,746) 17,560 18,974 205 19,179 229,609 (21,768) 207,841 45,991 (23,401) 22,590 89 (2,047) (613) 20,019 844 (723) 20,140 (5,594) 14,546 18,280 71 18,351 Inter-segment revenue relates to the sale of equipment, spare parts and servicing by Sales & Servicing to Operations. The Parent Company is domiciled in the UK. The total revenue from external customers in the UK is £42,408,000 (2012: £44,807,000) and the total revenue from other countries is £153,182,000 (2012: £163,034,000), comprising Asia £45,744,000 (2012: £46,172,000) and Continental Europe and Ireland £107,438,000 (2012: £116,862,000). Operations revenue is generated from sited operating equipment, with the three main countries being France, Japan and the United Kingdom. Sales & Servicing revenue mainly originates in France with customers worldwide. 51 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 20134 Profit for the year Costs and overhead items charged/(credited) in arriving at profit for the year, include the following: Amortisation, depreciation and impairment Amortisation of previously capitalised research and development expenditure Amortisation of intangible assets other than research and development Depreciation of property, plant and equipment – owned – leased 2013 £’000 4,107 178 4,285 16,306 137 16,443 2012 £’000 3,112 165 3,277 20,370 367 20,737 Amortisation of intangible assets (excluding capitalised research and development expenditure) is reflected in the income statement within cost of sales £101,000 (2012: £88,000) and administrative expenses £77,000 (2012: £77,000). Amortisation and impairment of capitalised research and development expenditure is reflected in cost of sales. Operating lease rentals – property – plant and equipment Inventory cost Cost of inventories recognised as an expense Inventory provision reversed 2013 £’000 9,995 1,206 11,201 24,804 (444) 24,360 Inventory provision reversed relates to provisions which have been utilised during the year. Other items Research and development current year expenditure, not capitalised Own work capitalised Trade receivables impairment (note 15) Net foreign exchange gains Gains on sale of property, plant and equipment Direct expenses for investment properties generating rental income 2013 £’000 387 (3,056) 133 (686) (2,698) 74 2012 £’000 11,134 1,081 12,215 26,064 (466) 25,598 2012 £’000 1,478 (2,507) 771 (370) (69) 65 52 Photo-Me International plcNotes to the Financial Statements continued Audit and non-audit services The following fees for audit and non-audit services were paid or are payable to the Company’s auditor, KPMG Audit Plc and its associates. Audit services Audit of these financial statements Fees payable to the Company’s auditor and its associates for other services – audit of the Company’s subsidiaries pursuant to legislation – other services 2013 £’000 157 175 37 369 2012 £’000 153 159 57 369 The audit fee of the Company was £57,000 (2012: £55,000). In order to maintain the independence of the external auditors, the Board has determined policies as to what non-audit services can be provided by the Company’s external auditors and the approval processes related thereto. This function is performed by the Audit Committee. Such services will only be approved if there are clear efficiencies and added value benefits to the Company. Fees paid to KPMG Audit Plc and its associates for non-audit services to the Company itself are not disclosed individually, as they are included above. In addition to the audit fees payable to KPMG and its associates, certain Group subsidiaries are audited by other firms. The following shows the fees payable to those firms: Audit fees Other services 2013 £’000 64 1 65 2012 £’000 94 4 98 Summary Total fees paid or payable to all of the Group’s auditors for audit and other services were £434,000 (2012: £467,000). Other operating income Other operating income of £1,138,000 (2012: £1,194,000) principally includes rental income from investment property (note 13). 53 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 20135 Employees Staff costs during the year amounted to: Wages and salaries Social security costs Share options granted to directors and employees Other pension costs – defined benefit schemes – defined contribution schemes Other post-retirement costs Staff costs of employees and executive directors Non-executive directors including social security costs 2013 £’000 36,875 8,052 212 140 183 222 45,684 253 45,937 2012 £’000 40,651 9,320 302 116 206 382 50,977 200 51,177 Included above are the following costs relating to the Group’s key management personnel who comprise the directors of the Parent Company. Directors’ emoluments Full details of directors’ remuneration and share options are given in the Remuneration Report on pages 26 to 32 and are summarised as follows: 2012 £’000 1,340 1 2012 981 147 1,128 958 158 12 1,128 Directors’ emoluments Number of directors accruing benefits under defined contribution schemes 2013 £’000 1,386 1 Included in the directors’ emoluments costs are bonuses totalling £521,000 (2012: £521,000). The average number of employees during the year (including executive directors) comprised: 2013 954 152 1,106 954 139 13 1,106 Full-time Part-time Operations Sales & Servicing Corporate 54 Photo-Me International plcNotes to the Financial Statements continued 6 Finance revenue and costs Finance revenue Bank interest Other assets at amortised cost Interest income from financial assets not at fair value through profit or loss Fair value movements on derivatives Interest received Other financial income Profit on sale of investments Profit on sale of Group undertakings Finance costs Bank loans and overdrafts at amortised cost Other loans at amortised cost Finance leases Other finance charges 2013 £’000 2012 £’000 482 51 533 – 533 – – – 533 387 36 – 3 426 The profit on sale of Group undertakings has arisen due to the recycling of accumulated exchange differences through the income statement. 362 72 434 210 644 18 155 27 844 621 24 5 73 723 55 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 20137 Taxation expense Tax charges/(credits) in the statement of comprehensive income 2013 £’000 2012 £’000 Taxation Current taxation UK corporation tax – current tax – prior years Overseas taxation – current year – prior years Total current taxation Deferred taxation Origination and reversal of temporary differences – current year – UK – overseas Adjustments to estimated recoverable amounts of deferred tax assets arising in previous years – UK – Overseas Impact of change in rate Total deferred tax Tax charge in the statement of comprehensive income 1,491 (52) 1,439 7,597 (1,451) 6,146 7,585 228 (1,206) 144 (94) 89 (839) 6,746 Tax relating to items charged/(credited) to other components of comprehensive income Deferred tax Actuarial gains and losses on pension schemes Tax credit in other comprehensive income 2013 £’000 308 308 742 25 767 5,834 (236) 5,598 6,365 106 (382) (221) (271) (3) (771) 5,594 2012 £’000 (118) (118) 56 Photo-Me International plcNotes to the Financial Statements continued Reconciliation of the total tax charge The difference between the Group tax charge and the standard UK corporation tax rate of 23.9% (2012: 25.8%) is explained below: Profit before tax Tax using the UK corporation tax rate of 23.9% (2012: 25.8%) Effect of: – non-taxable items – overseas tax rates – losses not recognised in deferred tax incurred/(relieved) – adjustments to tax in respect of prior years Total tax charge Effective tax rate 2013 £’000 24,306 5,814 611 1,756 18 (1,453) 6,746 27.8% 2012 £’000 20,140 5,204 (91) 1,218 (34) (703) 5,594 27.8% 8 Profits attributable to members of the Parent Company The profit for the year, after tax, dealt with in the financial statements of the Parent Company is £21,888,000 (2012: £13,162,000), including dividends received from subsidiaries. 9 Dividends paid and proposed 2013 2012 Pence per share £’000 Pence per share £’000 Interim 2012 paid 8 May 2012 2011 paid 6 May 2011 Final 2012 paid 7 November 2012 2011 paid 7 November 2011 Special Paid 8 March 2013 1.25 4,529 1.25 4,531 1.00 3,614 1.00 3,618 3.00 5.50 10,910 19,970 2.00 7,232 Year ended 30 April 2013 – Proposed dividends not yet paid The Board declared an interim dividend of 1.50p per share for the year ending 30 April 2013, amounting to £5,586,000 which was paid on 7 May 2013. The Board propose a final dividend for the year ended 30 April 2013 of 1.50 per share, which is subject to shareholder approval at the Annual General Meeting to be held on 12 September 2013. If approved, the dividend will be paid on 7 November 2013. Year ended 30 April 2012 – Proposed dividends not yet paid The Board declared an interim dividend of 1.25p per share for the year ending 30 April 2012, amounting to £4,529,000, which was paid on 8 May 2012. The Board proposed a final dividend for the year ended 30 April 2012 of 1.25p per share amounting to £4,531,000, which was paid on 7 November 2012. 57 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201310 Earnings per share Basic earnings per share amounts are calculated by dividing net earnings attributable to Ordinary shareholders of the Parent of £17,405,000 (2012: £14,349,000) by the weighted average number of Ordinary shares in issue during the year, excluding those held as treasury shares. Diluted earnings per share amounts are calculated by dividing the net earnings attributable to Ordinary shareholders of the Parent by the weighted average number of Ordinary shares outstanding during the year plus the weighted average number of Ordinary shares that would be issued on conversion of all the dilutive potential Ordinary shares into Ordinary shares. The Group has only one category of dilutive potential Ordinary shares: the share options granted to senior staff, including directors, as detailed in note 20. The earnings and weighted average number of shares used in the calculation are set out in the table below: 2013 Weighted average number of shares ’000 Earnings £’000 Earnings per share pence Earnings £’000 2012 Weighted average number of shares ’000 Basic earnings per share 17,405 364,066 Effect of dilutive securities: options – 1,566 Diluted earnings per share 17,405 365,632 4.78 (0.02) 4.76 14,349 361,840 – 1,920 14,349 363,760 Earnings per share pence 3.97 (0.02) 3.95 Potential Ordinary shares are treated as dilutive when and only when their conversion to Ordinary shares would decrease basic earnings per share or increase loss per share from continuing operations. 11 Goodwill and other intangible assets Goodwill Group £’000 10,394 (199) 10,195 86 10,281 301 (1) 300 1 301 9,980 9,895 10,093 Cost: At 1 May 2011 Exchange differences At 30 April 2012 Exchange differences At 30 April 2013 Impairment charges: At 1 May 2011 Exchange differences At 30 April 2012 Exchange differences At 30 April 2013 Net book value: At 30 April 2013 At 30 April 2012 At 1 May 2011 Company The Company has no goodwill. 58 Photo-Me International plcNotes to the Financial Statements continued Impairment of goodwill Goodwill acquired through business combinations has been allocated between the two reportable segments: – Operations activity – Sales & Servicing activity Carrying amount Goodwill Operations Sales & Servicing Total 2013 £’000 9,663 2012 £’000 9,578 2013 £’000 317 2012 £’000 317 2013 £’000 9,980 2012 £’000 9,895 Goodwill has been allocated for impairment testing purposes to six (2012: six) cash-generating units (CGUs): Carrying amount UK & Ireland Operations 1 Operations 2 Sales & Servicing 1 Total UK & Ireland Continental Europe Operations 1 Operations 2 Total Continental Europe Asia Operations 1 Total Asia Total Operations Sales & Servicing Total 2013 £’000 2012 £’000 2013 £’000 2012 £’000 2013 £’000 2012 £’000 154 14 – 168 1,947 303 2,250 7,245 7,245 9,663 154 14 – 168 1,873 292 2,165 7,245 7,245 9,578 – – 317 317 – – – – – – – 317 317 – – – – – 317 317 154 14 317 485 1,947 303 2,250 7,245 7,245 9,980 154 14 317 485 1,873 292 2,165 7,245 7,245 9,895 The Group tests annually, for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amount of all CGUs has been determined on a value in use basis. Value in use was determined by discounting the future cash flows of the CGU, for a finite period of five years, based on actual operating results, budgets and economic market research. Key assumptions Growth rate 3% (2012: 3%) The growth rate has been determined based on expected annual growth in EBITDA for each CGU and takes into account revenue, volumes, selling prices and operating costs. It is based on past experience and expected future developments in markets and operations. Discount rate 9–11% (2012: 7–12%) The pre-tax discount rates applied to the cash flow forecasts for the CGUs are derived from the pre-tax weighted average cost of capital for the Group adjusted for economic and political risks for the specific country concerned. The rates used are France 11% (2012: 11%), Japan 10% (2012: 9%), Germany 9% (2012: 9%) and Ireland 10% (2012: 12%). The Board is confident, overall, that these discount rates reflect the circumstances in each region, and are in accordance with IAS 36. Sensitivity to changes in assumptions There is significant headroom for each CGU and management believes that no reasonable possible change in any of the above assumptions would cause the carrying value of those CGUs to exceed their recoverable amount. Consequently there were no impairment losses recognised in 2013 (2012: none). 59 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201311 Goodwill and other intangible assets continued Other intangible assets Group Research and development costs £’000 Other intangible assets £’000 Cost: At 1 May 2011 Exchange differences Additions – internally generated – external Disposals At 30 April 2012 Exchange differences Additions – internally generated – external Disposals At 30 April 2013 Amortisation: At 1 May 2011 Exchange differences Provided during year Disposals At 30 April 2012 Exchange differences Provided during year Disposals At 30 April 2013 Net book value: At 30 April 2013 At 30 April 2012 At 1 May 2011 25,218 (1,954) 2,169 – (853) 24,580 754 1,058 – (539) 25,853 17,289 (1,531) 3,112 (853) 18,017 592 4,107 (539) 22,177 3,676 6,563 7,929 5,501 97 – 308 (101) 5,805 106 – 801 (55) 6,657 3,062 283 165 (100) 3,410 29 178 (19) 3,598 3,059 2,395 2,439 Total £’000 30,719 (1,857) 2,169 308 (954) 30,385 860 1,058 801 (594) 32,510 20,351 (1,248) 3,277 (953) 21,427 621 4,285 (558) 25,775 6,735 8,958 10,368 Capitalised research and development expenditure is amortised over a maximum of four years, with no residual value. Included in the net book value of other intangible assets is £2,119,000 for droit du bail (2012: £2,041,000 and 2011: £2,101,000). Droit du bail, are payments made for the right to occupy a space to site vending equipment and are allocated to the Operations segment. The Group has control over the use of these rights and has classified them as having an indefinite life. Although the Group has no intention of selling these rights, there is a value attached to them. These assets are based on cost, being the payments made for the right to occupy the space. In determining fair values of such assets for the purpose of impairment testing, the Group has based its assumptions on current prices paid for such assets (using actual amounts paid by the Company and/or management estimates for amounts paid by third parties) and, where the right has been held for a number of years, the expected sales price, less costs to sell. The carrying amount of these intangible assets has been reviewed on an individual basis for impairment testing. Management believes that no reasonable possible change in the basis of this assessment would cause the carrying value of these rights to exceed their recoverable value. Company The Company’s only intangible asset is software. 60 Photo-Me International plcNotes to the Financial Statements continued 12 Property, plant and equipment Group Land and buildings £’000 Photobooths and vending machines £’000 Plant, machinery, furniture, fixtures and motor vehicles £’000 Cost: At 1 May 2011 Exchange differences Additions – internal – external – subsidiaries acquired Disposals At 30 April 2012 Exchange differences Additions – internal – external Disposals At 30 April 2013 Depreciation: At 1 May 2011 Exchange differences Provided during year Disposals At 30 April 2012 Exchange differences Provided during year Disposals At 30 April 2013 Net book value: At 30 April 2013 At 30 April 2012 At 1 May 2011 11,109 (423) – 33 – (19) 10,700 (55) – 150 (2,262) 8,533 7,957 (346) 233 (18) 7,826 (47) 194 (2,034) 5,939 2,594 2,874 3,152 183,515 (4,213) 2,507 12,525 760 (20,268) 174,826 (4,115) 3,056 13,325 (11,983) 175,109 139,184 (4,128) 18,892 (19,590) 134,358 (3,005) 14,914 (11,238) 135,029 40,080 40,468 44,331 25,837 (1,871) – 809 – (1,111) 23,664 703 – 789 (437) 24,719 22,473 (1,735) 1,131 (991) 20,878 649 884 (352) 22,059 2,660 2,786 3,364 Total £’000 220,461 (6,507) 2,507 13,367 760 (21,398) 209,190 (3,467) 3,056 14,264 (14,682) 208,361 169,614 (6,209) 20,256 (20,599) 163,062 (2,403) 15,992 (13,624) 163,027 45,334 46,128 50,847 Internal additions for photobooths and vending machines of £3,056,000 (2012: £2,507,000) relate to own work capitalised, being equipment manufactured by the Group’s Sales & Servicing division and capitalised by the Group’s Operations division. Included in the above are assets held under finance leases, as follows: 2013 2012 Photobooths and vending machines £’000 Plant, machinery, furniture, fixtures and motor vehicles £’000 Photobooths and vending machines £’000 Plant, machinery, furniture, fixtures and motor vehicles £’000 Net book value Additions/reclassifications Depreciation charge – – 26 137 64 111 26 – 248 199 – 119 61 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201312 Property, plant and equipment continued Company Land and buildings £’000 Photobooths and vending machines £’000 Plant, machinery, furniture, fixtures and motor vehicles £’000 Total £’000 Cost: At 1 May 2011 Additions – internal – external Disposals – internal – external At 30 April 2012 Additions – internal – external Disposals – internal – external At 30 April 2013 Depreciation: At 1 May 2011 Provided during year Disposals – internal – external At 30 April 2012 Provided during year Disposals – internal – external At 30 April 2013 Net book value: At 30 April 2013 At 30 April 2012 At 1 May 2011 2,480 – 24 – – 2,504 – 142 – – 2,646 1,483 59 – – 1,542 59 – – 1,601 1,045 962 997 44,918 2,433 116 (602) (6,308) 40,557 3,810 147 (574) (4,964) 38,976 38,435 3,425 (586) (6,280) 34,994 2,413 (500) (4,706) 32,201 6,775 5,563 6,483 1,401 48,799 – 23 (3) (62) 1,359 – 68 – (62) 1,365 1,104 152 (2) (57) 1,197 116 – (59) 1,254 111 162 297 2,433 163 (605) (6,370) 44,420 3,810 357 (574) (5,026) 42,987 41,022 3,636 (588) (6,337) 37,733 2,588 (500) (4,765) 35,056 7,931 6,687 7,777 Internal additions for photobooths and vending machines of £3,810,000 (2012: £2,433,000) relates to new equipment manufactured by the Group’s Sales & Servicing division and equipment previously capitalised by the Group’s subsidiaries. Internal disposals relates to disposals to subsidiary companies. 62 Photo-Me International plcNotes to the Financial Statements continued 13 Investment property Group Cost: At 1 May 2011 Exchange differences At 30 April 2012 Exchange differences At 30 April 2013 Depreciation: At 1 May 2011 Exchange differences Depreciation provided during year At 30 April 2012 Exchange differences Depreciation provided during year At 30 April 2013 Net book value: At 30 April 2013 At 30 April 2012 At 1 May 2011 £’000 13,339 (1,115) 12,224 479 12,703 11,590 (994) 481 11,077 452 451 11,980 723 1,147 1,749 The investment property is freehold and is stated at cost. The property was valued by an independent professional valuer in October 2010, with a value of €12.2m based on a market value for similar properties, and on a rental stream valuation of €12.6m. Since this valuation was performed, the Group has sold the rights to the future rental stream on the property for the period up to April 2019. Funds received in the year ended 30 April 2011 on the original rental stream sale amounted to €9.2m (£8.2m). The associated liability is reflected in accruals and deferred income, note 25. The sale of the future rental income has impacted the value of the property. The Board believes at 30 April 2013 that net of the remaining deferred rental income creditor of €7.1m the property continues to be worth more than its £0.7m net book value. The valuations for future years are expected to increase due to the passage of time and the unwinding of the related deferred rental income creditor. Rental income from the investment property was £938,000 (2012: £1,019,000) (note 4) and finance costs were £92,000 (2012: £185,000). The Group will continue to act as a cash collection agent for the underlying lease agreement. The non-cancellable future minimum rentals receivable on this basis are as follows: No later than one year After one year but no more than five years After five years Company The Company has no investment property. 2013 £’000 999 3,997 999 5,995 2012 £’000 1,074 4,295 2,148 7,517 63 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201314 Investments in associates and subsidiaries Investment in associates Group Cost: At 30 April 2011 Exchange differences Additions Share of profits Other movements Dividends At 30 April 2012 Exchange differences Additions Share of profits At 30 April 2013 £’000 598 (1) 62 89 (55) (101) 592 25 118 55 790 Other movements in 2012 relates to the change in the percentage interest in Photo Direct Pty Ltd. The summarised financial information of the principal associates, relating to the Group’s share, is set out below. All companies are unlisted. Name At 30 April 2012 Max Sight Ltd Photo Direct Pty Ltd Other associates At 30 April 2013 Max Sight Ltd Photo Direct Pty Ltd Other associates Country of incorporation Assets £’000 Liabilities £’000 Revenue £’000 Profit/(loss) £’000 % interest Hong Kong Australia Hong Kong Australia 232 796 160 1,188 337 988 258 1,583 41 498 57 596 77 678 38 793 402 2,786 311 3,499 458 3,066 108 3,632 33.33 26.95 33.33 26.95 21 66 2 89 59 – (4) 55 64 Photo-Me International plcNotes to the Financial Statements continued Company Cost: At 1 May 2011 Capital increase relating to share-based payment (net) Disposals At 30 April 2012 Additions Capital increase relating to share-based payment (net) Disposals At 30 April 2013 Provision: At 1 May 2011 Decrease At 30 April 2012 Decrease At 30 April 2013 Net book value: At 30 April 2013 At 30 April 2012 At 1 May 2011 Associated undertakings £’000 Subsidiary undertakings £’000 Total £’000 43,913 233 (1,126) 43,020 183 139 (10) 43,505 233 (1,126) 42,612 1 139 (10) 42,742 43,332 2,005 (662) 1,343 (10) 1,333 41,409 41,269 41,500 2,155 (662) 1,493 (10) 1,483 41,849 41,527 41,758 408 – – 408 182 – – 590 150 – 150 – 150 440 258 258 The net capital increase relating to share-based payments relates to share options granted to the employees of subsidiary undertakings of the Group. Refer to note 20 for further details on the Group’s share option schemes. The details of the Group’s principal subsidiaries and associates are given in note 29. 65 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201315 Financial instruments The Group may hold financial instruments (such as bank and other loans) to finance its day to day working capital requirements, for capital expenditure, for corporate transactions (such as dividend payments to shareholders, share buybacks, acquisitions), for the management of currency and interest rate exposure arising from its operations (which may involve the use of derivatives and swaps) and for the temporary investment of short-term funds. With a strong net cash position, the Group currently finances its working capital and capital expenditure programmes from its own resources and has not used swaps or derivatives in the current or comparative year. In addition financial instruments such as trade receivables (amounts due from customers as a result of a sale) and trade payables (arising from purchases of materials and services) arise from day to day trading. The following notes describe the Group’s financial risk management policy and details on financial instruments. 15 (a) Fair values of financial instruments by class There is no difference between the fair values and the carrying values of financial assets and financial liabilities held in the Group’s or the Company’s statement of financial position. Held to maturity, available-for-sale financial assets and derivatives The fair value is based on quoted prices at the balance sheet date for quoted investments and other valuation methods for unquoted investments. For restricted deposit accounts held to maturity, fair value is estimated at the present value of future cash flows, discounted at the market rate of interest at the balance sheet date. Trade and other receivables The fair value of trade and other receivables, is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material. Cash and cash equivalents The fair value of cash and cash equivalents is estimated as its carrying value where cash is repayable on demand. For short-term cash deposits and other items not repayable on demand, fair value is estimated at the present value of future cash flows, discounted at the market rate of interest at the balance sheet date. Interest-bearing borrowings Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the balance sheet date. For finance leases the market rate of interest is determined by reference to similar lease agreements. Trade and other payables The fair value of trade and other payables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material. 15 (b) Financial statement risk management Financial risk factors and financial risk management Overview The Group and the Company are exposed to the following risks arising from financial instruments: (i) Credit risk (ii) Liquidity risk (iii) Market risk Credit risk is the risk of financial loss to the Group and the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. It mainly arises on trade and other receivables and bank balances. 66 Photo-Me International plcNotes to the Financial Statements continued Liquidity risk arises from the Group and the Company having insufficient cash resources to meet its obligations as and when they fall due for payment. Market risk arises from changes in market prices, such as exchange rates, interest rates and equity prices that will impact on the Group’s and the Company’s income statement or the value of its holding of financial instruments. Listed below are details of these risks, the Group’s objectives, policies and processes for measuring and monitoring risks and the Group’s management of capital. Risk Management Framework The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential risks for the Group. Information has been disclosed relating to the Parent Company only where material risk exists. There is a continuous process for identifying, evaluating and managing the key financial risks faced by the Group in line with changing market conditions and the Group’s strategy. If necessary, the Group’s internal audit function may assist in monitoring and assessing the effectiveness of controls and procedures. The Board retains responsibility for ensuring the adequacy of systems for identifying and assessing significant risks, that appropriate control systems and other mitigating actions are in place and that residual exposures are consistent with the Group’s strategy and objectives. Assessments are conducted for all material entities. The Group may use derivatives to manage exchange or interest rate risk. Approval for their use is given by the Board and the position is monitored constantly. With regard to management of interest rate risk, the objectives are to lessen the impact of adverse interest rate movements on earnings and shareholders’ funds and to ensure no breach of covenants. This is mainly achieved by reviewing the mix of fixed and floating rate borrowings. The Group’s liquidity risk management involves maintaining sufficient cash and cash equivalents and the availability of funding through an adequate amount of committed credit facilities. (i) Credit risk The Group has no significant concentrations of credit risk. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, and on outstanding trade and other receivables. Cash deposits are limited to high credit quality financial institutions. The Group has policies in place to ensure that sales of products and services are made to customers with an approved credit history. Credit quality of financial assets Individual Group companies have banking relationships with leading banks in the country in which the Group company operates. Surplus cash is placed in bank deposit accounts, for varying periods, depending on the cash requirements of the Group. These deposits are placed with leading banks in the country in which the Group company operates. The Group has procedures in place to ensure that cash is placed with sound financial institutions. The Group and the Company trade with a large number of customers, ranging from quoted companies and state organisations to individual traders. Individual Group companies have credit control procedures in place before making sales to new customers and levels of credit are reviewed in light of trading experience. The normal terms of trade are in the range 30–90 days. The collection of outstanding receivables is monitored at both the Group and subsidiary level. The Group and the Company make provisions against trade and other receivables, such provisions being based on the previous credit history of the debtor and if the debtor is in receivership or liquidation. The maximum credit risk for financial assets is the carrying value. Trade receivables, related parties and amounts due from associated undertakings are normally interest free. The normal terms of settlement are between 30 and 90 days. Other receivables and prepayments and accrued income are interest free. 67 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201315 Financial instruments continued 15 (b) Financial statement risk management continued Financial risk factors and financial risk management continued (i) Credit risk continued Credit quality of financial assets continued The movements in provisions are as follows: At 1 May Exchange differences Charged/(credited) to income statement Utilised At 30 April Group Company 2013 £’000 6,068 174 133 (1,623) 4,752 2012 £’000 6,809 (543) 771 (969) 6,068 2013 £’000 25 – 1,009 (297) 737 2012 £’000 1,184 – (9) (1,150) 25 At 30 April 2013, trade receivables of £1,535,000 (2012: £1,746,000) were past due and relate to a number of individual customers for whom there is no recent evidence of default and therefore are not impaired. The ageing of net trade current receivables is as follows: Current Past due – overdue 1–30 days – overdue 31–60 days – overdue 61 days Total past due Total trade receivables Group Company 2013 £’000 6,194 593 241 701 1,535 7,729 2012 £’000 8,044 712 488 546 1,746 9,790 2013 £’000 425 53 9 111 173 598 2012 £’000 692 131 32 19 182 874 The credit quality of trade receivables that are neither past due nor impaired is assessed on an individual basis, based on credit ratings and experience. Management believes adequate provision has been made for trade receivables. Amounts due from subsidiaries of £4,255,000 (2012: £3,990,000) are all current. (ii) Liquidity risk The Group’s liquidity risk management involves maintaining sufficient cash and cash equivalents and the availability of funding through an adequate amount of committed credit facilities. Trading forecasts indicate that the current facilities provide more than sufficient liquidity headroom to support the business for the foreseeable future. The net cash position at 30 April 2013 and 30 April 2012 has reduced liquidity risk for the Group. At 30 April 2013, the Group has undrawn facilities of £13,546,000 (2012: £13,471,000). Having regard to the Group’s cash flow, it is considered that these facilities provide adequate headroom for the Group’s needs. The facilities are generally reaffirmed by the banks annually. These undrawn facilities, if used, will be subject to floating rates of interest. Certain lending banks may impose loan covenants on borrowings, which are normal for these type of borrowings, and, during the years to 30 April 2013 and 30 April 2012, the Group and the Company have comfortably complied with such requirements. The table below summarises the maturity profile of the Group’s financial liabilities (including trade and other payables) at 30 April 2013 and 30 April 2012 based on contractual undiscounted payments. 68 Photo-Me International plcNotes to the Financial Statements continued At 30 April 2013 Interest bearing loans and borrowings and interest free loans Finance leases Trade and other payables At 30 April 2012 Interest bearing loans and borrowings and interest free loans Finance leases Trade and other payables Within one year £’000 Year 2 £’000 Year 3 £’000 Year 4 £’000 Total £’000 463 80 27,390 27,933 4,305 131 30,433 34,869 183 53 – 236 458 64 130 652 – – – – 210 25 – 235 – – – – 18 2 – 20 646 133 27,390 28,169 4,991 222 30,563 35,776 The table below summarises the maturity profile of the Company’s financial liabilities (including trade and other payables) at 30 April 2013 and 30 April 2012, based on contractual undiscounted payments. At 30 April 2013 Trade and other payables Group loans including interest At 30 April 2012 Trade and other payables Group loans including interest Contractual cash flows Within one year £’000 Over one year £’000 10,140 5,364 15,504 16,039 2,182 18,221 – – – – – – Total £’000 10,140 5,364 15,504 16,039 2,182 18,221 Held to maturity financial assets These largely comprise restricted bank deposit accounts where the cash is held by the bank as security against certain contingent liabilities. (iii) Market risk Foreign exchange risk The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than the local functional currency. In addition, the Group faces currency risks arising from monetary financial instruments held in non-functional currencies. The income statement reflects the impact of realised and unrealised exchange differences on trading items and monetary financial instruments (note 4). The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. The main currency translation risk relates to foreign operations whose functional currency is the Euro, Swiss franc or Japanese yen. The investments are not hedged. The translation reserve reflects the exchange differences arising on translation of the opening net assets and results of the foreign operation (note 20). Operational foreign exchange exposure Where possible, the Group tries to invoice in the local currency of the respective entity. If this is not possible, then to mitigate exposure, the Group endeavours to buy from suppliers and sell to customers in the same currency. The exposure relating to receivables and payables denominated in the non-functional currency is normally less than 3 months as this is the normal settlement period for these items. Where possible, the Group tries to hold the majority of its cash and cash equivalent balances in the local currency of the respective entity. 69 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201315 Financial instruments continued 15 (b) Financial statement risk management continued Financial risk factors and financial risk management continued (iii) Market risk continued Monetary assets/liabilities The Group continues to monitor exchange rates and buy or sell currencies in order to minimise the open exposure to foreign exchange risk. The Group may use derivative financial instruments mainly to reduce the risk of foreign exchange exposure on trading items (sales or purchases in currencies other than the domestic currency of the company concerned) and interest rate movements. The Group does not hold or issue derivative financial instruments for financial trading purposes. IFRS 7 sensitivity analysis The following table shows the impact on profit and equity of a change of 10% in exchange rates, excluding translation risk, assuming all other variables held constant. This analysis is for illustrative purposes only. 2013 Profit for the year Total equity 2012 Profit for the year Total equity Reported £’000 10% increase £’000 10% decrease £’000 17,560 98,358 14,546 96,841 17,880 98,721 15,344 97,626 17,174 97,912 13,572 95,881 The table below shows trade and other receivables that are not in the domestic currency of the individual Group company they are held by. Amount shown as current receivables Sterling Euro US dollar Group Company 2013 £’000 3,286 1,066 724 5,076 2012 £’000 – 1,860 228 2,088 2013 £’000 – 1,042 3 1,045 The majority of these amounts arise from inter-group trading. Included in the Company amounts due from subsidiaries are short-term loans as follows: Floating rate Euro loans 2013 £’000 564 564 2012 £’000 – 1,855 – 1,855 2012 £’000 632 632 70 Photo-Me International plcNotes to the Financial Statements continued Borrowings At 30 April 2013 and 30 April 2012 the Group had no borrowings which were not denominated in the functional currency of the Group company concerned. The Company has borrowings from Group companies in Swiss francs of £1,950,000 (2012: £2,031,000). The table below shows trade and other payables that are not in the domestic currency of the individual Group company they are held by, with the majority arising from inter-group trading. Amounts shown as current liabilities Sterling Euro Swiss franc US dollar Japanese yen Other currencies Analysis of net cash by currency Group 2013 £’000 3,546 2,349 3,082 650 975 8 2012 £’000 1,808 8,475 3,186 222 1,008 9 Company 2013 £’000 – 1,914 2,012 – – – 2012 £’000 – 7,853 2,123 – – – 10,610 14,708 3,926 9,976 2013 Sterling Euro Swiss franc US dollar Japanese yen Other currencies 2012 Sterling Euro Swiss franc US dollar Japanese yen Other currencies Bank £’000 19,413 24,246 6,817 158 7,809 1,208 59,651 10,559 25,828 6,767 146 10,289 1,016 54,605 Financial assets £’000 958 901 602 – – 86 2,547 804 963 622 – – – 2,389 Loans £’000 – (642) – – – (4) (646) – (4,935) – – – (6) (4,941) Leases £’000 Total £’000 – (6) – – (127) – (133) – (36) – – (185) – (221) 20,371 24,499 7,419 158 7,682 1,290 61,419 11,363 21,820 7,389 146 10,104 1,010 51,832 71 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201315 Financial instruments continued 15 (b) Financial statement risk management continued Interest rate risk At 30 April 2013 the Group had net cash of £61,419,000 (2012: £51,832,000). Included in these amounts are £26,958,000 in bank deposit accounts (2012: £21,259,000) and £2,461,000 (2012: £2,389,000) in restricted deposit accounts, not all of which are interest bearing. With the current low rates of interest on bank deposits, a change in interest rates will not have a significant impact for the Group. With the low level of external debt at 30 April 2013 the Group and the Company are not currently exposed to significant interest rate risk exposure. The Group uses derivative financial instruments mainly to reduce the risk of foreign exchange exposure on trading items (sales or purchases in currencies other than the domestic currency of the company concerned) and interest rate movements. The Group does not hold or issue derivative financial instruments for financial trading purposes. There were no derivatives reflected in the statement of financial position at 30 April 2013 and 30 April 2012. IFRS 7 sensitivity analysis With current low interest rates and the Group’s low level of debt financing the impact on the total interest payable charges due to a change of 100 basis points (1%) on borrowings subject to floating rates of interest is not material. Consequently no sensitivity tables have been presented. Terms and debt repayment schedule The Group has a number of individual bank loans with varying maturity dates. Interest rates on these loans are based on LIBOR, EURIBOR or equivalent rates plus a margin. The interest rates shown below indicate the range of interest rates ruling on the loans at 30 April 2013, with the latest maturity date shown. The Company has no loans outstanding at 30 April 2013 (2012: none). Group Finance leases Loans Loans Status Currency Interest rate Fixed rate Floating Interest free various various Euro 0%–7.20% 4.75% 0.0% Total carrying amount Year of maturity 2018 2013 2015 2013 Carrying amount £’000 133 227 419 779 2012 Carrying amount £’000 221 4,297 644 5,162 Floating rate interest borrowings (loans and overdrafts) are based on LIBOR, EURIBOR or equivalent rates in other countries plus a margin (generally between 0.45% and 1.0%). Included in the Company receivables – amounts due from subsidiaries, are loans amounting to £564,000 (2012: £632,000) which are subject to floating rates of interest based on EURIBOR plus a margin between 0.5% and 1.0%. Also included for 2013 is a loan to an associated undertaking of £129,000 (2012: £nil). Price risk The Group and the Company are exposed to changes in prices on raw materials, consumables and finished goods purchased from suppliers. Wherever possible, price rises are passed on to customers via sales price increases to help manage this risk. The Group does not have material amounts invested in equity securities and thus does not have any significant exposure to price risk on equity investments. 72 Photo-Me International plcNotes to the Financial Statements continued 15 (c) Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to enhance long-term shareholder value, by investing in the business so as to improve the return on investment (by increasing profits available for dividends) and by managing the capital gearing ratio (mixture of equity and debt). The Group manages, and makes adjustments to, its capital structure in light of the prevailing risks and economic conditions affecting its business activities. This may involve adjusting the rate of dividends, purchasing the Company’s own shares, the issue of new shares and reviewing the level and type of debt. The Group manages its borrowings by appraising the mix of fixed and floating rate borrowings and the mix of long-term and short-term borrowings. The Group is primarily financed by Ordinary shares, retained profits and borrowings. There were no changes to the Group’s approach to capital management during the year. The capital structure of the Group is presented below. Cash and cash equivalents Borrowings Net cash (excluding restricted deposits) Equity 2013 £’000 59,737 (779) 58,958 98,358 2012 £’000 54,605 (5,162) 49,443 96,841 The Group has various borrowings and available facilities that contain certain external capital requirements (covenants) that are considered normal for these types of arrangements. The Group remains comfortably within all such covenants. 16 Trade and other receivables Group Company Non-current assets Amounts due from – associated undertakings Other receivables Prepayments and accrued income Current assets Trade receivables – external – related parties Amounts due from – subsidiaries – associated undertakings Other receivables Prepayments and accrued income 2013 £’000 72 1,577 42 1,691 7,729 17 – 119 3,152 1,831 12,848 2012 £’000 2013 £’000 2012 £’000 – 1,431 42 1,473 9,790 – – 37 2,841 1,634 14,302 71 – – 71 598 – 4,255 58 181 535 5,627 – – – – 874 – 3,990 – 172 424 5,460 Non-current other receivables include deposits relating to operating sites and properties. Current other receivables include deposits relating to operating sites and properties, indirect and other taxation and other receivables. 73 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201317 Inventories Raw materials and consumables Work-in-progress Finished goods Group Company 2013 £’000 2012 £’000 2013 £’000 10,210 13,971 25 3,006 13,241 2 2,958 16,931 869 – 23 892 2012 £’000 1,010 – 147 1,157 The replacement value of inventories is not materially different from that stated above. The cost of inventories recognised as an expense included in cost of sales amounted to £24,360,000 (2012: £25,598,000) from continuing operations. 18 Cash and cash equivalents Cash at bank and in hand Deposit accounts (excluding restricted deposits) Cash and cash equivalents per statement of financial position Cash and cash equivalents per cash flow Group Company 2013 £’000 32,693 26,958 59,651 59,651 2012 £’000 33,346 21,259 54,605 54,605 2013 £’000 2,792 12,709 15,501 15,501 2012 £’000 5,811 5,051 10,862 10,862 Cash and cash equivalents per cash flow comprise cash at bank and in hand and short-term deposit accounts with an original maturity of less than three months, less bank overdrafts. The amounts placed in short-term deposit accounts depend on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rate. Cash at bank is generally interest free, but may earn interest at the applicable daily bank floating deposit rate. 19 Net cash Group Company Notes 2013 £’000 2012 £’000 2013 £’000 2012 £’000 Cash and cash equivalents per statement of financial position 18 59,651 54,605 15,501 10,862 Financial assets – held to maturity Financial assets – available-for-sale Non-current instalments due on bank loans Current instalments due on bank loans Non-current finance leases Current finance leases Net cash 2,461 2,389 958 604 86 (183) (463) (53) (80) – (685) (4,256) (91) (130) 21 21 21 21 – – – – – – – – – – 61,419 51,832 16,459 11,466 The Company’s net cash excludes inter-group financing. 74 Photo-Me International plcNotes to the Financial Statements continued At 30 April 2013, £2,461,000 of the total net cash (2012: £2,389,000) comprised bank deposit accounts that are subject to restrictions and are not freely for use by the Group. Net cash is a non-GAAP measure since it is not defined in accordance with IFRS but is a key indicator used by management in assessing operational performance and financial position strength. The inclusion of items in net cash as defined by the Group may not be comparable with other companies’ measurement of net cash/debt. The Group includes in net cash, cash and cash equivalents and certain financial assets, mainly deposits, less loan and other borrowings. In calculating the gearing ratio, the Group excludes certain deposit balances that are subject to restrictions and are not freely available for use by the Group. These financial assets are shown as held to maturity in the statement of financial position. The tables below, which are not currently required by IFRS, reconcile the Group’s net cash to the Group’s statement of cash flows. Management believes the presentation of the tables will be of assistance to shareholders. 2012/13 Cash and cash equivalents per statement of financial position and cash flow Financial assets – held to maturity Financial assets – available-for-sale Loans Leases Net cash 2011/12 Cash and cash equivalents per statement of financial position and cash flow Financial assets – held to maturity Loans Leases Net cash 1 May £’000 Exchange differences £’000 Other movements £’000 Cash flow £’000 30 April £’000 54,605 2,389 – (4,941) (221) 51,832 56,212 1,871 (16,768) (636) 40,679 (305) 51 – (194) 26 (422) (1,874) (115) 900 (3) (1,092) – – – – (64) (64) – 200 (221) (225) (246) 5,351 21 86 4,489 126 10,073 267 433 11,148 643 12,491 59,651 2,461 86 (646) (133) 61,419 54,605 2,389 (4,941) (221) 51,832 75 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201320 Share capital and reserves Share capital Company Allotted, issued and fully paid: Ordinary shares of 0.5p each At 1 May Issued in year – share options At 30 April 2013 Number 2012 Number 2013 £’000 2012 £’000 369,945,563 368,829,099 1,850 1,844 1,262,648 1,116,464 371,208,211 369,945,563 6 1,856 6 1,850 The holders of Ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. Share options, which have been granted to senior staff, including directors, to purchase Ordinary shares of 0.5p each, are as follows: At 30 April 2012 135,000 484,078 1,750,000 2,065,000 1,225,000 250,000 At 30 April 2011 555,792 135,000 1,170,800 1,750,000 2,080,000 Date options granted 13 Feb 2004 29 Jan 2009 20 Jan 2010 12 Jul 2010 4 Jul 2011 13 Dec 2011 4 Jul 2012 Date options granted 13 Dec 2002 13 Feb 2004 29 Jan 2009 20 Jan 2010 12 Jul 2010 4 Jul 2011 13 Dec 2011 Granted during year Lapsed or forfeited during year Exercised during year At 30 April 2013 Exercise price Date from which exercisable Last date on which exercisable (135,000) – – 138.50p 13 Feb 2009 12 Feb 2013 – (369,078) 115,000 10.92p 29 Jan 2012 28 Jan 2016 (788,230) (793,570) 168,200 36.67p 20 Jan 2013 19 Jan 2017 (50,000) (100,000) 1,915,000 36.33p 12 Jul 2013 11 Jul 2017 (10,000) – – – – – 1,215,000 65.25p 4 Jul 2014 3 Jul 2018 250,000 53.50p 13 Dec 2014 12 Dec 2018 1,926,000 39.17p 4 Jul 2015 3 Jul 2019 – 1,926,000 5,909,078 1,926,000 (983,230) (1,262,648) 5,589,200 Granted during year Lapsed or forfeited during year Exercised during year At 30 April 2012 Exercise price Date from which exercisable Last date on which exercisable (30,000) (525,792) – 18.33p 13 Dec 2007 12 Dec 2011 – – 135,000 138.50p 13 Feb 2009 12 Feb 2013 (96,050) (590,672) 484,078 10.92p 29 Jan 2012 28 Jan 2016 – (15,000) – – 1,255,000 (30,000) 250,000 – – – – – 1,750,000 36.67p 20 Jan 2013 19 Jan 2017 2,065,000 36.33p 12 Jul 2013 11 Jul 2017 1,225,000 65.25p 4 Jul 2014 3 Jul 2018 250,000 53.50p 13 Dec 2014 12 Dec 2018 – – – – – – – – – – – 5,691,592 1,505,000 (171,050) (1,116,464) 5,909,078 Full details of directors’ share options are given in the Remuneration report on pages 30 and 31. All options can be exercised, in normal circumstances, within a period of four years from the exercise of option date, providing that the performance criterion or performance condition has been achieved. The subscription price for all options is based upon the average market price on the three days prior to the date of grant. Options are restricted, or may lapse, if the grantee leaves the employment of the Group before the first exercise date. All options are equity settled options. 76 Photo-Me International plcNotes to the Financial Statements continued The performance criterion applying to the options granted between 13 December 2002 and 13 February 2004 is that, over a three year period, the Company achieves real EPS growth averaging 3% a year, or more. Options granted after 2005 are covered by the new Photo-Me Executive Share Option Scheme. The vesting of options is subject to an EPS-based performance condition relating to the extent to which the Company’s basic EPS for the third financial year, following the date of grant, reaches a sliding scale of challenging EPS targets. Options are normally granted over shares worth up to 150% of a participant’s salary each year. In exceptional cases as part of the terms of attracting senior management, options in excess of that number may be granted. The weighted average exercise price of all options outstanding at 30 April 2013 is 43.9p (2012: 41.4p) and the weighted average exercise price of options exercisable at 30 April 2013 is 26.2p (2012: 38.7p). The weighted average share price for options exercised during the year ended 30 April 2013 was 52.9p (30 April 2012: 54.8p). The weighted average remaining years for options outstanding at the year end date is 5.2 years (2012: 4.9 years). Share-based payments In accordance with IFRS 2 Share-based Payments, share options granted to senior management including directors after November 2002 have been fair-valued and the Company has used the Black-Scholes option pricing model. This model takes into account the terms and conditions under which the options were granted. The following table lists the inputs to the model used for the years ended 30 April 2013 and 30 April 2012: Date of grant Vesting period Share price volatility Share price on date of grant Option price Expected term Dividend yield Risk free interest rate Fair value Date of grant Vesting period Share price volatility Share price on date of grant Option price Expected term Dividend yield Risk free interest rate Fair value 13 December 2002 13 February 2004 29 January 2009 20 January 2010 5 years 76.5% £0.1875 £0.183 5 years 78.2% £1.3975 £1.385 3 years 52.8% £0.1075 £0.109 3 years 69.1% £0.355 £0.3667 5.25 years 5.25 years 3.25 years 3.25 years 1.6% 4.3% £0.112 0.0% 4.6% £0.943 0.0% 2.52% £0.04693 0.7% 2.27% £0.1636 12 July 2010 4 July 2011 13 December 2011 4 July 2012 3 years 70.1% £0.38 £0.3633 3 years 65.4% £0.64 £0.6525 3 years 63.2% £0.5025 £0.535 3 years 58.3% £0.38 £0.3917 3.25 years 3.25 years 3.25 years 3.25 years 3.29% 1.27% £0.1595 3.13% 1.32% £0.2446 4.48% 0.50% £0.1638 6.58% 0.46% £0.1023 The charge for share-based payments is £212,000 (2012: £302,000). Share price volatility is based on historical volatility. 77 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201320 Share capital and reserves continued Reserves Group Treasury shares (Group and Company) In accordance with shareholders’ resolutions passed at Annual General Meetings, the Company may purchase its own shares up to a maximum of 10% of the Ordinary shares in issue. At 30 April 2012 the number of shares held in Treasury was 7,505,000, representing 2.03% of the Ordinary issued share capital. The treasury shares have no voting or dividend rights until the Company reissues them, which can be at any time. Under Companies Act legislation the amount has to be deducted from reserves available for distribution before the Company can make dividend distributions. On 13 March 2013 the Company sold its holding of 7,505,000 Ordinary shares held in treasury at a price of 78.0 pence per share. No gain or loss was made on this disposal. Other reserves Other reserves mainly arise in subsidiaries, are generally not distributable, and arise as a result of local legislation regarding capital maintenance. Translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and associates. In accordance with the options allowed under IFRS 1, only exchange rate differences arising on translation after the date of transition, 1 May 2004, are shown in this reserve. When an overseas subsidiary or associate is disposed, the cumulative exchange difference relating to the entity disposed is recycled through the income statement as part of the profit or loss on sale in finance revenue/cost and is shown as a movement in other comprehensive income. Company Other reserves The Company’s other reserves include £201,000 (2012: £201,000) arising on the redemption of the deferred shares and £823,000 (2012: £684,000) relating to the fair value of options granted to employees of Group undertakings (note 14). 21 Financial liabilities Non-current liabilities Non-current instalments due on bank loans Finance lease creditors Current liabilities Current instalments due on loans Finance lease creditors Group 2013 £’000 183 53 236 463 80 543 2012 £’000 685 91 776 4,256 130 4,386 Bank loans are denominated in a number of currencies and bear interest rates based on LIBOR or foreign equivalent rates appropriate to the country in which the borrowing is incurred. Further details are provided in note 15 and in the tables below. Margins are generally between 0.40% and 1.0%. The maturity of non-current bank loans is as follows: Between one and two years Between two and three years Between three and four years 78 Group 2013 £’000 183 – – 183 2012 £’000 457 210 18 685 Photo-Me International plcNotes to the Financial Statements continued Obligations under finance leases The Group has entered into finance lease arrangements for certain items of property, plant and equipment, mainly photobooths, for periods of up to four (2012: four) years (note 12). The total finance lease creditor at 30 April 2013 is £133,000, £80,000 due within one year and £53,000 due between two and five years, (2012: total finance lease creditor £221,000, £130,000 due within one year and £91,000 due within two to five years). The Company has no finance leases (2012: none). 22 Post-employment benefit obligations The Company and its principal subsidiaries operate pension and other retirement and post-employment schemes including both funded defined benefit schemes, whereby retirement benefits are based on the employee’s final remuneration and length of service, and defined contribution schemes, whereby retirement benefits reflect the accumulated value of agreed contributions. Defined contribution schemes are held independent of the Group and no liability arises save to pay over the agreed level of contributions. The charge for the year for these schemes was £183,000 (2012: £206,000). The Group’s and the Company’s defined benefit pension schemes are included in the statement of financial position under employment benefit obligations, as are other overseas retirement provisions. The amount shown in the statement of financial position is detailed as follows: Company defined benefit scheme Overseas employment benefit obligations Overseas defined benefit scheme Amount shown as non-current liability Group 2013 £’000 – 3,384 381 3,765 2012 £’000 182 3,552 551 4,285 Company 2013 £’000 – – – – 2012 £’000 182 – – 182 Photo-Me International plc defined benefit pension scheme The Group’s and the Company’s policy is to recognise actuarial gains and losses immediately each year in the statement of changes in equity, under other comprehensive income. The Company operates a final salary defined benefit scheme in the UK for some long-serving employees, which is funded by contributions from the Company and by members of the scheme. This pension scheme (the Photo-Me International plc Pension and Life Assurance Fund) is closed to new entrants. The defined benefits are based upon an employee’s years of service and final pensionable salary. Actuarial valuations are undertaken triennially by a qualified independent actuary, the most recent valuation being at 1 June 2012, which has not yet been formally approved by the pension fund trustees. 79 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201322 Post-employment benefit obligations continued Reconciliation of the movement in the present value of the defined benefit obligation Present value of defined benefit obligation at beginning of year Current service cost Interest cost Contributions by members Actuarial loss on plan liabilities Benefits paid Present value of defined benefit obligation at end of year Reconciliation of the movement in the fair value of plan assets Fair value of plan assets at beginning of year Expected return on plan assets Actuarial gain/(loss) on plan assets Contributions by the Company Contributions by members Benefits paid Fair value of plan assets at end of year Amount to be recognised in the statement of financial position Present value of funded obligations Fair value of scheme assets Net assets Effect of limit of recognition of an asset Recognition of minimum funding requirement Net liability recognised in the statement of financial position 2013 £’000 5,865 42 266 4 731 (212) 6,696 2013 £’000 5,923 306 602 350 4 (212) 6,973 2013 £’000 6,696 (6,973) (277) 277 – – 2012 £’000 5,450 37 284 4 316 (226) 5,865 2012 £’000 5,624 336 (165) 350 4 (226) 5,923 2012 £’000 5,865 (5,923) (58) 58 182 182 The cumulative amount of actuarial gains and losses recognised since 1 May 2004 in the Group and Company statements of comprehensive income, within other comprehensive income, is a loss of £1,268,000 (2012: loss of £1,102,000) in respect of the Company’s defined benefit scheme. Amount to be recognised in the statement of comprehensive income Current service cost Interest on obligation Expected return on plan assets Total charge/(credit) 2013 £’000 42 266 (306) 2 2012 £’000 37 284 (336) (15) The amounts shown above are included in staff costs (note 5) and in administrative expenses. 80 Photo-Me International plcNotes to the Financial Statements continued Total amount recognised in other comprehensive income Actuarial loss Effect of the limit of recognition of an asset Recognition of minimum funding requirement Total amount recognised in other comprehensive income An analysis of the assets of the plan is as follows: Plan assets 2013 £’000 (129) (219) 182 (166) Equities Gilts and bonds Other Total plan assets Expected return on plan assets 2013 2012 2011 £’000 1,708 4,910 355 6,973 £’000 1,540 3,981 402 5,923 % 25 70 5 100 n/a £’000 1,904 3,332 388 5,624 % 26 67 7 100 5.1 2012 £’000 (481) 116 312 (53) % 34 59 7 100 5.9 There were no financial instruments of the Company included in the plan assets (2012: none) and there were no property assets occupied by the Company (2012: none). The overall expected return on assets is calculated as the weighted average of the expected return on each individual asset class. The expected return on equities is the sum of inflation, the dividend yield, economic growth and investment expenses. The return on gilts and bonds is the current market yield on long-term gilts and bonds. The expected return on other assets has been set equal to the assumed inflation rate. Actual return on plan assets Actual return on plan assets Principal actuarial assumptions Discount rate Expected return on plan assets at end of year Rate of increase in salaries Price inflation Pension increases – pension accrued before 6 April 1997 – pension accrued from 6 April 1997 2013 £’000 908 2012 £’000 171 30 April 2013 % 30 April 2012 % 3.90 n/a 4.30 3.30 3.00 3.20 4.60 5.10 4.00 3.00 3.00 3.00 The mortality tables used for 2013 are S1NMA _L (males) and S1NFA_L (females) with allowances for future mortality improvements in line with the CMI 2011 model using a long term rate of improvement of 1% pa. The mortality tables used in 2012, 2011, 2010, 2009 and 2008 were the PxA00, medium cohort tables projected by year of birth with an underpin to future improvements of 1% p.a. The life expectancy from age 65 underlying these mortality tables is as follows: Male currently aged 65 Female currently aged 65 Male currently aged 45 Female currently aged 45 2013 2012 23.62 years (age 88.62) 22.59 years (age 87.59) 24.82 years (age 89.82) 25.03 years (age 90.03) 24.88 years (age 89.88) 24.52 years (age 89.52) 26.35 years (age 91.35) 26.88 years (age 91.88) 81 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201322 Post-employment benefit obligations continued History of assets, liabilities and actuarial gains and losses Present value of defined benefit obligation Fair value of assets Surplus/(deficit) Experience (losses)/gains on plan liabilities (£’000) – as a percentage of the present value of plan liabilities Difference between expected and actual return on plan assets (£’000) – as a percentage of the present value of plan assets 2013 £’000 6,696 6,973 277 2013 (731) (11%) 602 9% 2012 £’000 5,865 5,923 58 2012 (316) (5%) (165) (3%) 2011 £’000 5,450 5,624 174 2011 (42) (1%) 131 2% 2010 £’000 5,307 5,228 2009 £’000 4,405 4,399 (79) (6) 2010 (900) (17%) 2009 230 5% 830 16% (1,135) (26%) The Company’s best estimate of contributions to be paid by the Company next year is £121,000 (2012: £225,000). Overseas post-employment benefit obligations Provisions for obligations to make termination payments on retirement, to staff who are not members of the pension and retirement schemes, are as follows: • the Group’s Japanese subsidiary undertaking, Nippon Auto-Photo K.K., has an unfunded post- employment retirement provision based on an employee’s length of service with the company and their current salary. The allowance is paid to an employee when they leave the company. This has been provided for in full within the accounts. During the year ended 30 April 2010, Nippon Auto-Photo K.K. agreed with employees that 50% of the liability for the retirement provision will be paid in cash into an independently controlled defined contribution scheme over the following three years. At 30 April 2013 no amount remains outstanding under this agreement (2012: £364,000 was outstanding). • to meet the legal obligations within France, the Group’s subsidiary undertakings have unfunded retirement provisions, which were valued by an independent actuary using the Projected Unit Credit Method at 30 April 2013 and 30 April 2012. This actuarial valuation incorporated the following principal assumptions in arriving at the present value of the obligations: – discount rate 2.75% (2012: 3.75%) – rate of increase in salaries 2.5% (2012: 2.5%) – retirement age 62–64 years (2012: 65 years) – inflation rate 2.0% (2012: 0.0%) Management believes that the book value for retirement obligations in France fairly states the position at 30 April 2013 and 30 April 2012. The amount charged to the income statement (cost of sales and administration costs) in respect of these obligations is £222,000 (2012: £382,000). The movement in the provisions is as follows: At 1 May Exchange differences Utilised and other movements Charged to other comprehensive income At 30 April 82 2013 £’000 3,552 (180) 12 – 3,384 2012 £’000 3,379 (62) 123 112 3,552 Photo-Me International plcNotes to the Financial Statements continued Overseas pension schemes The Group’s Swiss subsidiary, Prontophot (Schweiz) A.G. participates in funded multi-employer pension schemes. The Swiss state mandates a guaranteed return to which such employees’ schemes are entitled. An actuarial valuation was performed at 30 April 2013 by independent actuaries. Reconciliation of the movement in the present value of the defined benefit obligation Present value of defined benefit obligation at 1 May Exchange difference Contributions by members Current service cost Past service cost Interest cost Actuarial (gain)/loss on plan liabilities Benefits paid Present value of defined benefit obligation at 30 April Reconciliation of the movement in the fair value of plan assets Fair value of plan assets at 1 May Exchange difference Contributions by company and members Expected return on plan assets Actuarial gain on plan assets Benefits paid Fair value of plan assets at 30 April The movements in the fund are as follows: Net liability at 1 May Exchange difference (Decrease)/increase in liability Net liability at 30 April Amount to be recognised in the statement of comprehensive income Current service cost Past service cost Interest on obligation Expected return on plan assets Total charge Amount to be recognised in the statement of financial position Present value of funded obligations Fair value of scheme assets Net liability in statement of financial position 2013 £’000 3,297 40 38 164 – 59 (69) (1,146) 2,383 2013 £’000 2,746 29 190 85 98 (1,146) 2,002 2013 £’000 551 11 (181) 381 2013 £’000 164 – 59 (85) 138 2013 £’000 2,383 (2,002) 381 2012 £’000 3,217 (30) 50 97 53 90 593 (773) 3,297 2012 £’000 3,029 (30) 249 109 162 (773) 2,746 2012 £’000 188 – 363 551 2012 £’000 97 53 90 (109) 131 2012 £’000 3,297 (2,746) 551 83 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201322 Post-employment benefit obligations continued Plan assets Cash Equities & debt instruments Other Total plan assets Expected return on plan assets Principal actuarial assumptions Discount rate Expected return on plan assets at end of year Rate of increase in salaries Price inflation Pension increase Expected average remaining working life in years 2013 2012 2011 £’000 7 1,385 610 2,002 £’000 30 1,861 855 2,746 % – 69 31 100 n/a £’000 23 1,884 1,122 3,029 % 1 68 31 100 3.8 % 1 62 37 100 3.8 30 April 2013 % 30 April 2012 % 2.00 3.50 2.00 1.00 0.00 11.0 3.00 3.80 2.00 1.00 0.00 10.1 The mortality tables used in 2013 were the BVG 2010 tables and in 2012 and 2011 were the BVG2005 tables. History of assets, liabilities and actuarial gains and losses Present value of defined benefit obligation Fair value of assets Deficit Experience gains/(losses) on plan liabilities (£’000) – as a percentage of the present value of plan liabilities Difference between expected and actual return on plan assets (£’000) – as a percentage of the present value of plan assets 2013 £’000 2,383 2,002 (381) 2013 205 9% 98 5% 2012 £’000 3,297 2,746 (551) 2012 (372) (13%) 162 6% 2011 £’000 3,217 3,029 (188) 2011 (71) (2%) 191 7% The Group’s best estimate for contributions to be paid by the company next year to the scheme is £145,000 (2012: £189,000). The amount recognised in the income statement for this scheme was £138,000: £107,000 included in cost of sales and £31,000 included in administrative expenses (2012: £132,000: £106,000 included in cost of sales and £26,000 included in administrative expenses). 84 Photo-Me International plcNotes to the Financial Statements continued 23 Provisions Group At 30 April 2011 Exchange differences Utilised and other movements Charged to income statement At 30 April 2012 Amount shown as non-current liability Amount shown as current liability At 30 April 2012 Exchange differences Utilised and other movements Charged to income statement At 30 April 2013 Amount shown as non-current liability Amount shown as current liability Employee related claims £’000 Product warranties £’000 893 (104) (543) 1,110 1,356 – 1,356 1,356 1,356 81 (420) 1,153 2,170 – 2,170 2,170 2,842 (246) (95) 324 2,825 6 2,819 2,825 2,825 113 (1,238) 1,295 2,995 4 2,991 2,995 Other £’000 778 (69) (400) 544 853 71 782 853 853 146 (795) 2,935 3,139 3 3,136 3,139 Total £’000 4,513 (419) (1,038) 1,978 5,034 77 4,957 5,034 5,034 340 (2,453) 5,383 8,304 7 8,297 8,304 Employee related claims Certain overseas Group undertakings have made provision for claims made by former employees. It is expected that most of these costs will be incurred in the next financial year. Product warranties A provision is made for claims on products sold under warranty. The provision will reduce as the warranty period expires but will be increased by warranties given with new sales. The provision is based on past experience of level of repairs for items under warranty. It is expected that most of the provision will be utilised within the next year. The effect of discounting is not material. Other provisions Additions to other provisions relate to potential legal claims against certain Group companies. These have been calculated by management based on legal advice and are expected to be incurred in the next financial year. Company At 30 April 2013, the Company had current and non-current provisions of £4,000 (2012: £18,000) which included product warranty provisions £1,000 (2012: £15,000). 85 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013– (265) – (66) (2,784) (2,784) – (2,784) 2012 £’000 (2,893) – 101 8 24 Deferred taxation Deferred tax comprises: Timing differences relating to property, plant and equipment Other timing differences in recognising revenue and expense items in other periods for taxation purposes: – research and development – post-employment benefit provisions – losses – other short-term temporary differences The closing balance comprises: – deferred tax assets – deferred tax liabilities Group 2013 £’000 199 2012 £’000 Company 2013 £’000 2012 £’000 569 (1,977) (2,453) 1,155 (1,367) – (1,286) (1,299) (2,157) 858 (1,299) 1,932 (1,864) (259) (1,018) (640) (3,148) 2,508 (640) – – – (52) (2,029) (2,029) – (2,029) The movements on deferred taxation during the year were as follows: Group Company Opening balance Exchange differences (Credit)/charge for the year in income statement Amounts charged/(credited) to other comprehensive income Closing balance 2013 £’000 (640) (128) (839) 308 (1,299) 2012 £’000 269 (20) (771) (118) (640) 2013 £’000 (2,784) – 490 265 (2,029) (2,784) Temporary differences associated with Group investments Unremitted earnings of overseas affiliates No deferred tax liability has been recognised on the unremitted earnings of overseas subsidiaries as no tax is expected to be payable on them in the foreseeable future based on current legislation. Unrecognised deferred tax assets Deferred tax assets amounting to £2,323,000 (2012: £2,042,000) arising on temporary differences of £9,312,000 (2012: £8,202,000), in respect of unrelieved tax losses and other temporary differences have not been recognised, as their future economic benefit is uncertain. The expiry dates of unrelieved tax losses are as follows: Group 2013 £’000 464 1,859 2,323 2012 £’000 148 1,894 2,042 Expiring between two and 20 years No expiry date 86 Photo-Me International plcNotes to the Financial Statements continued In addition, the Group has an unrecognised deferred tax asset on gross capital losses of £5,691,000 (2012: £5,562,000), of which £5,562,000 (2012: £5,562,000) relate to the Company, which have not been recognised as their future economic benefit is not certain. Factors that may affect future tax charges in the UK On 20 March 2013, the Chancellor announced a reduction in the main rate of UK corporation tax to 23% from 1 April 2013 and 21% from 1 April 2014 and a proposal from 1 April 2015 that the rate would be 20%. The impact of these measures if adopted will see a reduction in the Group’s corporation tax charge arising on UK taxable profits. The change in deferred tax will depend on the amount of UK deferred tax at the time of the change. The overall effect of the future reductions from 23% to 20%, if these rates had applied to the UK deferred tax balances at 30 April 2013 would be to reduce the net deferred tax asset by £268,000. Factors that may affect future overseas tax charges Effective 1 April 2012, the Japanese government announced a reduction in the rate of corporation tax for both large, and small and medium companies (SMEs). The full reduction is delayed for 3 years with a 10% surcharge imposed for the 3 years ending 1 April 2015. The effect of this is that the effective rate for companies will reduce from approximately 41% to approximately 38% for the first 3 years and approximately 36% thereafter. It is estimated that had the deferred tax rate of 36% applied to the balance at 30 April 2013, the increase would amount to £6,000. 25 Trade and other payables Amounts shown as non-current liabilities Other payables Accruals and deferred income Amounts shown as current liabilities Trade payables – third parties – related parties Amounts owed to subsidiaries Other taxes and social security costs Other payables Accruals and deferred income Group 2013 £’000 – 4,981 4,981 2012 £’000 130 5,516 5,646 14,149 15,094 23 – 3,827 5,543 8,674 32,216 – – 3,454 6,486 9,794 34,828 Company 2013 £’000 2012 £’000 – – – 4,587 – 7,608 1,001 73 3,099 16,368 – – – 4,298 – 10,418 925 82 3,272 18,995 Included in the Company figures – amounts owed to subsidiaries, are borrowings as detailed in note 15. 87 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201326 Operating leases The future minimum lease payments under non-cancellable operating leases are as follows: Land and buildings Not later than one year After one year but not more than five years After five years Other Not later than one year After one year but not more than five years Total Not later than one year After one year but not more than five years After five years Group 2013 £’000 8,836 19,932 682 29,450 1,501 1,121 2,622 10,337 21,053 682 32,072 2012 £’000 5,058 7,459 319 12,836 716 1,098 1,814 5,774 8,557 319 14,650 Company 2013 £’000 2012 £’000 909 283 – 1,192 579 745 1,324 1,488 1,028 – 2,516 1,114 605 10 1,729 543 910 1,453 1,657 1,515 10 3,182 Lease arrangements The Group and the Company have entered into operating lease agreements in respect of property, plant and machinery, the majority of which are for motor vehicles. In addition, the Group and the Company have entered into various commission agreements with site-owners enabling the Group and the Company to site vending equipment for a number of years. The amounts recorded as operating lease rentals in the income statement and included in land and buildings lease rentals in the above table represent the minimum fixed commission payable. Certain agreements may, in addition, have clauses where additional commission is payable based on a percentage of revenue generated, above a specified amount. 27 Capital commitments and contingent liabilities Capital commitments The Group has capital commitments of £167,000 (2012: £462,000) for the supply of property, plant and equipment. In addition, the Group’s Operations companies have contracted with the Group’s Sales & Servicing companies for the supply of machines totalling £225,000 (2012: £303,000), of which the Company’s commitments total £225,000 (2012: £303,000). Contingent liabilities The Company and subsidiary undertakings have given other guarantees in the normal course of business to third parties. No losses are expected from guarantees given by the Company and subsidiary undertakings. In the opinion of the directors, adequate provision has been made for claims and legal disputes and the directors thus consider that no contingent liability for litigation exists. The Group has no contingent liabilities with regard to its interest in the associated undertakings (2012: none). 88 Photo-Me International plcNotes to the Financial Statements continued 28 Related parties The following transactions were carried out with related parties: Key management compensation Salaries and other short-term employee benefits – excluding ex-gratia and termination payments Post-employment benefits Share-based payments – charge Group Company 2013 £’000 1,386 8 35 1,429 2012 £’000 1,340 8 22 1,370 2013 £’000 1,386 8 35 1,429 2012 £’000 1,340 8 22 1,370 The remuneration of the directors, both executive and non-executive, of the Company, who are the key management personnel of the Group, is set out in the table above. Further information about the remuneration of the directors is given in the Remuneration report on pages 26 to 32. Certain executive directors, with UK salaries, are entitled to join the Company’s Group Personal Pension Plan, to which the Company contributes 5% of their basic salaries. The charge for the year was £8,000 (2012: £8,000). No director who served during the year was a member of the Company’s defined benefit pension scheme (2012: none). Directors of the Company control 21.55% of the Ordinary shares of the Company. The interests of the directors are shown on page 30 of the Remuneration Report. Sales of goods and services, purchases of goods and services and year end balances Group 2013 £’000 2012 £’000 Company 2013 £’000 2012 £’000 Sales of goods and services Related parties other than associates Associates Purchases of goods and services Related parties other than associates Associates Trade and other receivable balances Related parties other than associates Associates Trade and other payable balances Related parties other than associates 37 198 235 107 1 108 17 191 208 23 – 126 126 – – – – 37 37 – – – – 8 – 8 – 129 129 – – – – – – – – – – – Transactions with related parties other than associates refer to transactions with companies in which certain directors have declared an interest. All transactions with related parties were conducted at arm’s-length in the ordinary course of business. The trade and other receivable balances with related parties and associates arise from normal trading and do not include any security or any other consideration. Included in the amount receivable from associates is a loan of £129,000. The trade and other payable balances arise from normal trading. 89 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 201328 Related parties continued Defined benefit pension scheme The Company meets administration costs of the defined benefit scheme, which amounted to £65,000 (2012: £51,000). Company transactions with subsidiaries Sales Purchases Amounts owed by subsidiaries Amounts owed to subsidiaries 2013 £’000 321 5,153 4,255 7,608 2012 £’000 221 4,634 3,990 10,418 In addition, the Company has charged interest to subsidiaries of £56,000 (2012: £14,000), has been charged interest of £65,000 (2012: £59,000), has charged management fees of £4,819,000 (2012: £2,441,000), has been charged management fees of £1,113,000 (2012: £1,386,000) including £1,113,000 (2012: £1,386,000) as a contribution to research and development and has sold fixed assets to subsidiaries of £74,000 (2012: £17,000). The Company also acquired new fixed assets from subsidiaries of £3,810,000 (2012: £2,433,000). Dividends received from subsidiaries were £18,150,000 (2012: £10,533,000) and from associates £nil (2012: £101,000). 90 Photo-Me International plcNotes to the Financial Statements continued 29 Group undertakings The Company has taken advantage of the exemption under section 410 (2) of the Companies Act 2006 by listing below details of the subsidiary and associated undertakings whose results or financial position, which in the opinion of the directors, principally affected the financial statements. Details of other subsidiary and associated undertakings not listed here will be annexed to the Company’s next Annual Return. The Company’s interest in the Group undertakings is the same as the Group’s interest, with the exception of investments marked (*) where the shares are held by another Group undertaking. All holdings shown relate to Ordinary shares. Unless indicated otherwise the voting rights are the same as the percentage of shares held. The principal activities of the Group undertakings are Operations and Sales & Servicing as described in note 3. Principal activity Group’s interest Country of incorporation Subsidiary undertakings Fotofix-Schnellphotoautomaten G.m.b.H. Operations Jolly Roger (Amusement Rides) Limited Sales & Servicing KIS S.A.S. Sales & Servicing Nippon Auto-Photo Kabushiki Kaisha Photomatico (Singapore) Pte. Limited Photomaton S.A.S. Photo Me France S.A.S. Photo-Me Ireland Limited Photo-Me (Shanghai) Co. Ltd. Prontophot Austria G.m.b.H. Prontophot Belgium N.V. Prontophot Holland B.V. Prontophot (Schweiz) A.G. SCI du Lotissement d’Echirolles SCI Immobilière du 21 Associated undertakings Max Sight Limited Photo Direct Pty Ltd Operations Operations Operations Investment Operations Operations Operations Operations Operations Operations Property Property Operations Sales & Servicing 100% 100% 100%* 100% 100% 100%* 100% 100% 100%* 100% 100% 100% 100% 61%* 100%* 33% 27% Germany England France Japan Singapore France France Ireland China Austria Belgium Holland Switzerland France France Hong Kong Australia 91 Business ProfileThe Year in ReviewGovernanceFinancial StatementsCompany InformationAnnual Report for the year ended 30 April 2013Five Year Summary for the years ending 30 April Income statement (unaudited) Revenue Operations Sales & Servicing Total revenue Operating profit/(loss) after special items before finance costs Net finance income/(cost) Profit/(loss) before tax Taxation Profit/(loss) after taxation Attributable to: – Equity owners of the Parent – Non-controlling interests Earnings per share – Basic Earnings per share – Diluted Dividends – interim Dividends – final Dividends – special Total dividends * Including discontinued operations. Statement of financial position (unaudited) Intangible assets Property, plant and equipment Other non-current investments Other non-current assets Current assets Assets held for sale Total assets Share capital Treasury shares Reserves Non-controlling interests Total equity Total non-current liabilities Total current liabilities Liabilities held for sale Total equity and liabilities Net cash/(debt) 2013 £’000 2012 £’000 2011 £’000 2010* £’000 2009* £’000 173,217 178,063 176,852 172,456 166,144 22,373 29,778 42,968 51,810 59,147 195,590 207,841 219,820 224,266 225,291 24,199 20,019 18,388 13,595 (16,687) 107 121 (385) (1,283) (3,401) 24,306 20,140 18,003 12,312 (20,088) (6,746) (5,594) (4,252) (2,484) 2,351 17,560 14,546 13,751 9,828 (17,737) 17,405 14,349 13,608 9,722 (15,622) 155 197 143 106 (2,115) 17,560 14,546 13,751 9,828 (17,737) 4.78p 4.76p 1.50p 1.50p 3.00p 6.00p 3.97p 3.95p 1.25p 1.25p – 3.77p 3.74p 1.00p 1.00p – 2.70p 2.69p 0.25p 1.00p – 2.50p 2.00p 1.25p (4.34)p (4.34)p – – – – 2013 £’000 16,715 46,057 790 6,376 2012 £’000 18,853 47,275 592 6,877 2011 £’000 20,461 52,596 598 6,922 2010 £’000 19,773 61,219 583 3,441 2009 £’000 19,038 77,526 716 2,503 85,872 86,075 97,539 84,418 69,729 – – – – 8,008 155,810 159,672 178,116 169,434 177,520 1,856 1,850 1,844 2,039 2,037 – (5,802) (5,802) (5,802) (5,802) 95,305 1,197 98,358 9,847 47,605 – 99,792 91,778 81,323 76,618 1,001 96,841 13,292 49,539 – 935 88,755 20,595 68,766 – 792 78,352 25,298 65,784 – 781 73,634 38,022 58,063 7,801 155,810 159,672 178,116 169,434 177,520 61,419 51,832 40,679 8,077 (23,499) Note: The figures above have been extracted from the accounts for the relevant year and have not been adjusted for changes in accounting policies as a result of adoption of new accounting standards. 92 Photo-Me International plcFinancial & operational statistics Capital expenditure – photobooths and vending machines £,000 Capital expenditure – research & development equipment £’000 EBITDA £’000 EBITDA % of revenue Number of vending sites 2013 2012 2011 2010 2009 16,381 15,032 15,853 10,944 11,480 1,058 2,169 3,358 3,259 2,700 44,927 44,033 47,568 44,236 38,560 23.0 21.2 21.6 19.7 17.1 43,150 43,300 43,700 43,850 42,600 G o v e r n a n c e i F n a n c a i l S t a t e m e n t s C o m p a n y I r n f o m a t i o n 93 Business ProfileThe Year in ReviewAnnual Report for the year ended 30 April 2013 Company Information and Advisors Registered in England and Wales Number 735438 Registered Office Church Road Bookham Surrey KT23 3EU Tel: +44 (0)1372 453399 Fax: +44 (0)1372 459064 Web: www.photo-me.co.uk e-mail: ir@photo-me.co.uk Auditor KPMG Audit Plc 1 Forest Gate Brighton Road Crawley RH11 9PT Brokers JPMorgan Cazenove Ltd 25 Bank Street Canary Wharf London E14 5JP finnCap Limited 60 New Broad Street London EC2M 1JJ Bankers Lloyds TSB Bank plc City Office 11–15 Monument Street London EC3V 9JA Santander UK plc 2 Triton Square Regent’s Place London NW1 3AN Financial public relations Madano Partnership Ltd 76 Great Suffolk Street London SE1 0BL Registrars Capita Registrars Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU 94 Photo-Me International plcShareholder Information Analysis of registered shareholdings at 26 June 2013 Number of holdings Number of Ordinary shares % of issued Ordinary share capital Category: Individuals Nominees Other corporate bodies Size of holding: 1 – 1,000 1,001 – 10,000 10,001 – 100,000 100,001 – 500,000 500,001 – 1,000,000 1,000,001 and above 2,367 365 42 2,774 1,371 1,060 242 55 16 30 2,774 10,031,768 225,362,137 135,856,766 371,250,671 698,080 3,203,260 7,958,981 12,014,070 11,417,615 335,958,665 371,250,671 2.7 60.7 36.6 100.0 0.2 0.9 2.1 3.2 3.1 90.5 100.0 Capital gains tax For shareholders wishing to calculate United Kingdom capital gains tax, the example below shows the effect on 100 shares at 31 March 1982 after all subsequent capitalisations and subdivisions: 31 March 1982 9 December 1983 (1 for 5 Cap.) 12 December 1985 (1 for 6 Cap.) 12 December 1985 (subdivision) 18 December 1987 (subdivision) 13 December 1989 (subdivision) 8 November 1999 (subdivision) 100 20 120 20 140 140 280 1,120 1,400 1,400 2,800 11,200 14,000 Ordinary shares of 50p each (at market value of 445p per 50p share) Ordinary shares of 50p each G o v e r n a n c e Ordinary shares of 50p each (50p to 25p) Ordinary shares of 25p each (25p to 5p) Ordinary shares of 5p (5p to 2.5p) Ordinary shares of 2.5p each (2.5p to 0.5p) Ordinary shares of 0.5p each Investor relations website Investor relations information, including share price, is available through the Company’s website www.photo-me.co.uk 95 i F n a n c a i l S t a t e m e n t s C o m p a n y I r n f o m a t i o n Business ProfileThe Year in ReviewAnnual Report for the year ended 30 April 2013 Shareholder Information continued Transfer office and registration services Capita Registrars Limited act on behalf of the Company. All shareholder enquiries, notifications of change of address, dividend mandates, etc. should be referred to them at: Capita Registrars Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Tel: 0871 664 0300 Overseas Tel: 00 44 208 639 3399 Fax: 0871 644 0399 Capita Registrars also offer a range of shareholder information online at www.capitashareportal.com The Register of directors’ interests is maintained at the Registered Office at Bookham. Copies of the Annual Report should be requested from: 12 September 2013 Announcement in December 2013 Announcement in June/July 2014 25 September 2013 27 September 2013 7 November 2013 Photo-Me International plc Church Road Bookham Surrey KT23 3EU Tel: +44 (0)1372 453399 Fax: +44 (0)1372 459064 e-mail: ir@photo-me.co.uk Financial calendar Annual General Meeting Half year results (to 31 October 2013) Full year results (to 30 April 2014) Dividend Final (year to 30 April 2013) – ex-dividend date – record date – payment date 96 Photo-Me International plcSee our report online at www.photo-me.co.uk Annual Report for the year ended 30 April 2013 t P h o o - M e I n t e r n a t i o n a l p c l A n n u a l R e p o r t 2 0 1 3 Photo-Me International plc Church Road Bookham Surrey KT23 3EU +44 (0)1372 453399 +44 (0)1372 459064 Tel: Fax: Web: www.photo-me.co.uk 

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